U.S. CARES Act offers hope for local NPOs, universities

Many South African non-profit organisations (NPOs) and universities are struggling due to diminished funding – but a change in United States tax law offers a glimmer of hope for some.

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by the U.S. Congress in March, people who do not usually itemise deductions for their taxes can claim a deduction for charitable donations in the 2020/2021 financial year.

Such deductions are acceptable if they go to a U.S. 501(c)(3), which refers to NPOs that are designated tax-exempt charitable organisations by the U.S. federal tax authorities (popularly known as the IRS).

Many of South Africa’s universities, and some NPOs, already have access to a 501(c)(3). Local NPOs seeking to raise funds in the U.S. can open an ‘American friends fund’ at the King Baudouin Foundation United States (KBFUS).

Hafeeza Rashed, KBFUS’s Senior Advisor of Communications and Outreach, says: “With such a fund, the South African nonprofit will have a cost-effective solution to receive tax-deductible gifts from U.S. donors, without the trouble and expense of setting up their own 501(c)(3) public charity.

“Close to 50 South African nonprofits already work with us – including the Nelson Mandela Foundation, the Desmond Tutu HIV Foundation, and the universities of Johannesburg and KwaZulu-Natal.”

Soraya Joonas, the Financial Director of Inyathelo, says: “Changes to U.S. tax law for this year could benefit South African NPOs and universities trying to raise money in America. We thought it useful to highlight this option with university alumni or donors living – or filing taxes – in the United States.

“This change in American law offers a charitable giving benefit for some local organisations and we encourage them to take professional advice and explore it,” says Ms Joonas.

 Inyathelo is a long-established South African NPO that advises on sustainability in the NPO, philanthropic and higher education sectors. See contact details for Inyathelo and KBFUS below.

Tax and financial specialists may be interested in the finer details of the CARES Act, and an explanation by the Community Foundation for Southeast Michigan follows. You can also find out more about the CARES Act here.

Individual donations

The Act allows those who itemise to fully deduct qualified charitable contributions made in the 2020 tax year to public charities up to 100% of adjusted gross income.

Before the CARES Act, there was a limit on deductions for cash contributions to charities up to 60% of adjusted gross income. Any excess cash contributions that are not deducted in 2020 can be carried forward subject to the 60% limit in the succeeding five years.

For individuals who do not itemise, the CARES Act allows an above-the-line charitable contribution deduction of up to $300.

According to the Foundation, a qualified charitable contribution is “(i) made in cash, (ii) for which a charitable contribution deduction is otherwise allowed, and (iii) that is made to a public charity, excluding a donor-advised fund or a supporting organisation.”

In the U.S. a donor-advised fund is a charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organisations, families or individuals.

Company donations

For corporations, the 10% taxable income limitation increases to 25% of taxable income for cash contributions made in 2020 to public charities other than donor advised funds or supporting organisations. The deduction limit for a charitable contribution of inventory increases from 15% to 25% of taxable income.

Contact:

• Soraya Joonas, Inyathelo Financial Director

Soraya@inyathelo.org.za.

• Hafeeza Rashed, KBFUS Senior Advisor of Communications & Outreach Hafeeza@kbfus.org.
• NPOs and universities needing information on sustainability can access Inyathelo resources here.