July 30, 2020
When the reality of the Coronavirus set in after the NBA had canceled their season, I fielded multiple calls from concerned clients. As a Private CFO to high net worth individuals, I was prepared to give my two cents on how the pandemic could devastate our financial markets and what opportunities they should be thinking about to be best positioned to come out of it as solid as possible. But I was pleasantly surprised when I realized that most of these clients were not calling out of fear for themselves or losing money, but were instead concerned about how those who were hit the hardest would be able to make it through and to discuss opportunities to help. That's right, NFL Players and other wealthy individuals were not panicking about the 40% drop in the stock market or trying to stockpile cash, they wanted advice on how they could help the kids in poorer areas to eat.
Armed with knowing that they wanted to make a difference and knowing the geographic region where they played or were from, we began the search for local food banks who were 501c3 registered organizations and started making calls. There are some great food bank organizations who are doing an amazing job in the big cities like Miami or New York and who are very deserving. But we soon realized by calling around that some of the food banks in these small communities were overwhelmed due to the virus and several of them had annual budgets that were less than what my clients were contributing this one time. We were able to identify multiple organizations who were on the front lines in these smaller cities and we spoke to their management team to understand how they operated and who they were helping. Within two weeks of the Coronavirus' arrival, my clients were providing the financial support necessary to supply more than 250,000 meals to underserved communities in 4 states. Helping to feed children in need was an incredible blessing, but it did not stop there.
One day after the George Floyd video was circulated, I was contacted by a client who informed me that he wanted to help the protest effort financially and asked for my input on the best way to do it. Similar to the clients with the food bank, he was looking to make an impact in the city where he was from and where he was living now. Both of these cities were large cities but I was shocked to discover how many ways one could help. There were programs that provided tear gas masks to protestors, that bailed out protestors who were arrested and several funds that were established to help the families of the men who lost their lives at the hands of police officers. We narrowed down the search to organizations that were posting bail for protestors and to those who actually created programs that would lead to reduction in social inequality. Finally, we went to the IRS website to look up each organization and to determine whether they qualified as a 501c3 organization so that we could let our client know whether or not the contribution that they made would be tax-deductible and then passed this information along. If an organization is not a 501c3 that does not mean that you can not give them money, but if they are a registered nonprofit it does mean that you can deduct the money given from your taxable income. Let's discuss that.
There is no doubt that there will be many individuals who want to support the movement but are not able to be on the front lines or attend protest events. Giving money to organizations helps them to fund the protest efforts and even implement programs that can make change. If the organization is a registered 501c3, that means that any money that you give them will be deducted from your taxable income. The CARES Act did make a very important change to the percentage of your income that you can deduct in a single year. Prior to 2018, an individual could deduct up to 50% of their adjusted gross income (AGI). Put simply, if you had income of $100,000 and you decided to give $100,000 to a qualified public charity, you could only reduce your taxable income by $50,000. In 2018 and beyond, that amount was increased to 60% or in our example above, you could reduce your taxable income by $60,000. But in 2020 the CARES Act uncapped this number and allows an individual or couple to deduct up to 100% of their taxable income dollar for dollar by the contribution made to a public charity.
Most people will not see that as a huge benefit as you do have to eat, pay bills, live, etc and if you made $100,000 it is hard to imagine that you could contribute $100,000. But the goal of the CARES Act was to promote charitable giving in 2020 and incentivize individuals to be more generous and there are some scenarios that could work. If you are an NFL player and you have done a great job of saving and have it in your heart to create a legacy and to give back in a big way, this could work. If you are getting towards the end of your playing career and assuming that you are truly prepared for the future, and let's say that over your career you made $100 million but this year will be making $1 million, you could contribute $1 million to a qualified public charity and instead of the taxing authorities taking 40% or more, you would get a full refund of all withholdings while creating a future legacy for the next generation.
Ultimately it is up to each and every individual to determine if they want to help and how they can make a difference. My opinion is that the protests were necessary steps in an effort to bring inequality to the forefront and I hope that they will not stop until real change is made. Whether you are volunteering to participate in peaceful protests, giving money to help support them, funding organizations like the Equal Justice Initiative that seems to be making real progress nationally towards racial and economic injustice or even creating your own effort and campaign, you can make a difference with your voice or with your wallet while reducing your tax bill at the same time.
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