New tax rules encourage charity just when it’s needed the most

Did you catch our op-ed in the Star-Ledger? We’re happy to share it below:

New tax rules encourage charity just when it’s needed the most

Carolyn Lange, November 19, 2020

The coronavirus has changed all our lives, but for many this year has been nothing short of devastating. Fortunately, the federal government has added new tax rules so individuals who have a little extra are encouraged to help those who are less fortunate. The new rules provide expanded benefits for New Jerseyans to give to their favorite causes, providing a much-needed boost to hard-hit communities and the non-profits that serve them.

The challenges in New Jersey’s communities are clear. The Community FoodBank of New Jersey reports, for example, that the number of New Jersey residents struggling with hunger is expected to rise by more than 50% because of the COVID-19 pandemic – creating 1.2 million food-insecure families and individuals. Sadly, the number of New Jersey children who are food insecure will almost double, increasing to 20% of children in our state.

Of course, hunger is just one metric. St. John’s Soup Kitchen in Newark recently reported their spike in demand for hot meals in 2020 followed a steady, pre-pandemic increase in homelessness. And, of course, New Jersey’s unemployment rate more than tripled this spring, jumping from under 5% to above 15%, before coming back down to 10% in September.

At the same time, more than 80% of nonprofit organizations are experiencing financial hardships and declines in revenue of their own, according to Charity Navigator. Nearly two-thirds of nonprofit organizations reported they cut back on programs this year, despite a sharp increase in demand.

Fortunately, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, creates rare giving incentives for taxpayers at both ends of the income scale, with an eye toward addressing our communities’ challenges.

Individuals who do not itemize their taxes (a larger group than in past years given the doubling of the standard deduction to $12,000 for individuals and $24,000 for those filing jointly) will be able to deduct charitable contributions for the first time in 40 years. This deduction is limited to $300 for individual taxpayers and $600 for households filing jointly. Nearly 80% of taxpayers take the standard deduction so this new incentive is available to an enormous pool of potential donors.

Individuals who itemize deductions and seek to deduct as much as possible from their adjusted gross income (AGI) can now deduct up to 100% of their AGI. In past years, donors could only deduct 60% of their AGI through cash contributions to public charities; for 2020, that limit was raised to 100%.

Donating long-term appreciated securities or distributions from an IRA remain popular and effective options for reducing one’s overall tax burden while creating new philanthropy, though the rules associated with such gifts were not materially changed by the CARES Act. Donors who have realized significant capital gains, whether through stock, bonds, or real estate, are still subject to deduction limitations and should consult their financial and tax advisors.

The new tax rules relating to charitable giving from the CARES Act could not have come at a more critical time. We encourage all New Jersey residents who feel fortunate this year to reach out and give to those who need it most by supporting the hard-working organizations serving our communities and neighbors in this challenging time.

Carolyn Lange is Chief Financial Officer at the Community Foundation of New Jersey.