As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by the US 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. This change offers a glimmer of hope for some South African non-profit organisations (NPOs) and universities who are struggling due to diminished funding.
Such deductions are acceptable if they go to a US 501(c)(3), which refers to NPOs that are designated tax-exempt charitable organisations by the US 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).
‘American friends fund’
Local NPOs seeking to raise funds in the US 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 non-profit will have a cost-effective solution to receive tax-deductible gifts from US donors, without the trouble and expense of setting up their own 501(c)(3) public charity.
“Close to 50 South African non-profits 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 US 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 Joonas.
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 US, 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.
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.
More information on the CARES Act is available here.
