Following our analysis of how the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) will impact colleges and universities, EAB wanted to specifically help our advancement partners understand what the relief package means for philanthropy and how it may impact donors’ inclination to give. The four items in the CARES Act that directly relate to charitable giving that are briefly outlined below.
Section 2204 of the CARES Act creates a universal deduction for charitable contributions of up to $300.1 This deduction will apply to all taxpayers who do not itemize (i.e. claim the standard deduction) and will enable them to deduct $300 worth of qualified charitable contributions from their adjusted growth income (AGI). Currently, this universal charitable contribution deduction is temporary and will only apply to contributions made in 2020.
The CARES Act suspends the existing 60% AGI limitation for individual charitable contributions in 2020.2 With this new policy, individuals can now deduct donations up to 100% of their 2020 AGI. This change only applies to cash contributions and gifts to donor advised funds (DAFs) are not eligible.
The CARES Act increases the current taxable income limit on cash contributions made by corporations from 10% to 25% for 2020.
The act also increases the deductions for charitable contributions of food inventory to 25% of taxable income for corporations, up from the current cap of 15% .
What does this mean for higher education fundraising?
While it is impossible to know the long-term impact of the CARES act, our initial analysis suggests that:
- The ability to apply 100% of AGI to cash gifts to public charities may create an opportunity to attract more major gifts and planned gifts
- The temporary $300 universal charitable contribution deduction may encourage taxpayers who don’t itemize to make more cash gifts to qualified charities
- The increased limit on cash contributions from corporations may encourage more corporate giving
However, we also recommend that leaders think through the following five areas.
1. Training MGOs around the CARES Act
The last month has been a whirlwind for our advancement teams. In particular, MGOs find themselves navigating how to translate their usual face-to-face activities to remote working environment. While most MGOs will have heard of the CARES Act, we should not assume that they are familiar with all the various provisions and its potential impact on philanthropy. Therefore, it is important that advancement leaders quickly roll-out training to ensure that MGOs are familiar with the CARES Act, understand the key provisions, and can discuss the implications with prospects and donors.
2. Communicating CARES Act changes to donors
Much of the publicity around the CARES Act focused on the individual stimulus checks, the bailout of the airlines, and the billions allocated to large corporations. There has been far less written about the temporary universal charitable deduction and the removal of the charitable contribution limits for individuals. Given the rapid-fire news cycle and the steady stream of COVID-19 coverage, there are likely many prospects and donors who are unaware of these changes. In the wake of the 2017 Tax Cuts and Jobs Act, many colleges and universities sent messages to their donors outlining the changes and explaining how the provisions might impact them. The current environment is far different, but it is important for advancement leaders and their teams to think through when and how they might communicate these temporary changes to prospects and donors. For example, getting in touch with donors and offering a conversation about the CARES Act and its philanthropic implications could be a great opportunity for a stewardship touch.
3. Near-term strategy regarding current major gift conversations
One noteworthy aspect of the CARES Act is that the changes to the charitable giving provisions are designated as temporary. Since these changes only apply to 2020, it is important for MGOs and their managers to discuss how this might impact their strategy for current and forecasted major gift conversations. If someone is on track for a major giving ask in 2021, is there a case to be made for accelerating that timeline so they can take advantage of the changes? Similarly, is there a segment of our prospects for whom the 100% AGI provision is particularly attractive and therefore we should double down on, such as individuals who make cash gifts that are pre-retirement, high-earning, and might want to leverage the charitable contribution carryover as a deduction in future years?
4. Emergency funds, food pantries, and the universal charitable deduction
$300
As colleges and universities navigate this challenging period, higher ed leaders report an outpouring of support from alumni who are asking “how can I help?” Several institutions are proactively sending out solicitations to support student emergency funds, food pantries, and pandemic funds. These types of direct-to-student support are likely to continue to resonate and therefore should be center of the plate for annual giving appeals.
The passage of the 2017 Tax Cuts and Jobs Act meant that colleges and universities could no longer use tax deductions to drive end-of-the-year urgency. However, the temporary $300 universal charitable deduction provides an opportunity to once again weave tax messaging into annual giving solicitations. As a result, Advancement leaders and their teams must plan now for how they want to deploy tax urgency in annual giving campaigns and appeals across the rest of the year.
5. Rethinking goal-setting for FY2021
Although the CARES Act has the potential to enhance philanthropy, a number of advancement leaders are preparing for significant headwinds as they look to FY2021. For example, some donors may want to pull back on philanthropic support and major gifts that were on track to be closed may have their timelines pushed back. While we don’t know the coming months will bring, we do know that the effects of COVID-19 and the CARES Act on advancement will continue well into the next fiscal year. As you prepare to close out this fiscal year and begin planning for the next one, advancement leaders should begin evaluating how their goals for FY2021 should be modified to reflect this uncertainty. In the event that advancement efforts do take a hit, proactively modifying your projections may soften the decline.
1It is important to note that this deduction does not apply to gifts made to Supporting Organizations (SOs), nor does it apply the establishment of a new, or the maintenance of an existing, donor advised fund (DAF). Additionally, this new deduction does not apply to non-cash gifts.
2It is important to note that this deduction does not apply to gifts made to Supporting Organizations (SOs), nor does it apply the establishment of a new, or the maintenance of an existing, donor advised fund (DAF). Additionally, this new deduction does not apply to non-cash gifts.
Sources:
CARES Act Includes Charitable Giving Incentives, CARES Act Provides Financial Relief for Nonprofit Organizations, Federal CARES Act for Nonprofits-Pandemic Stimulus, Specifics of the CARES Act and Implications for Businesses and Individuals, Analysis of the Senate Coronavirus, Aid, Relief, and Economic Security (CARES) Act.
