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Changing the American donation landscape

There's good news for U.S. nonprofits on tax-deductible donations! In December 2015, the Protecting Americans from Tax Hikes Act (PATH Act of 2015) was signed into law. The act made permanent several tax provisions that Congress had until then renewed in an unpredictable fashion, often when it was too late to make informed financial decisions for the tax year.

Why should you care about these tax laws?

There are three provisions in the PATH Act that will have a significant impact on charitable organizations:

  • An expanded food donation tax deduction
  • An enhanced tax deduction for conservation easement donations
  • A permanent direct charitable distribution option for individual retirement accounts (IRAs)

Let's take a closer look at each of these.

Food donation tax deduction

The recent change in tax law allows small businesses that donate excess food to charitable organizations to take a special tax cut that was previously reserved for C corporations. If your organization relies on food donations to serve your community, you may have an entirely new community of potential donors.

Tax deductions for conservation easement donations

The PATH Act's enhanced tax deductions enable smaller landowners and farmers to increase their land donations by as much as a third. This isn't just great news for land trusts, but for the future of conservation efforts in general. Bigger tax breaks mean bigger incentives to donate land for conservation.

IRA direct charitable distribution option

Perhaps the most significant gain for nonprofits is the IRA direct charitable distribution option, which allows people age 70-1/2 and older to donate up to $100,000 in IRA distributions per year directly to nonprofit organizations. This option has been available intermittently for some time, but now will be permanent.

How can you help your organization benefit from the tax provisions?

As you applaud the PATH Act, make sure your donors are aware of these changes in the donation landscape.

You might feature a short article in your newsletter to summarize the new tax deductions, or send a tailored letter to older donors — or those who may want to plan ahead for future charitable giving — to make sure they know about the new IRA direct distribution provision. If your nonprofit relies on food donations, consider reaching out to smaller businesses who previously had little tax incentive to donate to your organization. The more information you can provide, the better you can convey the benefits of giving.

This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.

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Disclaimer

MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.

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References

The New York Times: For small business and entrepreneurs, some welcome clarity by Paul Lim

National Council of Nonprofits: Protecting America from Tax Hikes Act of 2015

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Librarian, freelance researcher and nonprofit enthusiast