The coronavirus pandemic has brought hardship on many individuals and families around the world. In the United States, nonprofit organizations like churches and food pantries provide aid for those who have been hurt the most. Because these institutions often operate primarily through donations, it is more important than ever that those with the financial means to do so make contributions to charitable organizations. With the CARES Act of 2020, legislators are encouraging donors to make greater contributions with the incentive of provisional tax relief for such donations. Investors may also find the course of impact investing to be appealing during these difficult times, especially to their local charitable organizations in their communities.
CARES Act Tax Relief
When filing 2020 tax returns (in 2021), donors will be able to document charitable donations in two different areas. The first is a brand-new section that allows for a deduction of up to $300 of cash donations. Itemizing these donations will result in a loss of eligibility, and some contributions (to specific organizations as well as to donor-advised funds) are not deductible here.
The other option is for those who will itemize their donations. Typically, there is a limit on deductibles amounting to 60% of your adjusted gross income, but the CARES Act raises this limit to 100%. In this way, donors are encouraged to make more cash donations in 2020 because of the rare deduction potential. Donors who want to offset their income on tax returns can especially benefit from this opportunity.
Impact Investing and Donor-Advised Funds
Very wealthy Philanthropists tend to get a lot of attention when they donate money toward worthwhile causes, but they are not the only ones who can make a difference and benefit from their contributions. Impact investing entails investing in businesses and for-profit organizations that promise to make an impact in the world, including environmental and social change. This type of investing can be done by anyone with the financial means to do so. By investing in such businesses and organizations, investors can help bolster the economy, build a new brand, and make positive changes in the world while also gaining an opportunity to achieve high returns if they are investing in these companies.
Investing in donor-advised funds is another great way charitably inclined people can participate in charitable giving during this time. A donor advised fund allows a person to make a contribution to the fund, receive an immediate potential tax deduction and invest those assets so that the contribution can grow over time. You can then control the timing of when you make the grants to charities you wish to support. While well known firms such as Fidelity and Schwab offer donor advised funds, you talk to your Financial Advisor about your charitable intent.
In times of need, philanthropic contributions can make a significant impact to those who need help. Investors and donors alike can make a difference by contributing to charitable organizations or investing in ambitious organizations as well as donor-advised funds.
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