‘Tis the season of giving, but with the new federal tax law changes, charities could experience a drop in donations. Since charitable deductions must be itemized to receive a tax deduction, the benefit of the higher standard deduction may effectively eliminate the tax benefit of the deductible donations for many taxpayers. Taxpayers whose state and local taxes, interest expense, and itemized deductions added up to an amount that exceeded the previous, lower standard deduction, will now, with the larger standard deduction ($12,000 for singles and $24,000 for married couples), receive a larger benefit by using the standard deduction. Thus the tax incentive to give to charities is substantially curtailed.
The Council on Non-Profits anticipates a drop in charitable giving of $13 Billion or more annually and a destruction of 220,000 non- profit jobs. Currently, 30% of US taxpayers itemize; that is expected to change to 5%. 83% of itemizers give to charity, but only 44% of non-itemizers do. Only time will tell what 2018 and thereafter will reveal. Many taxpayers are doubling up their charitable gifts and giving every other year, letting the respective charities know that their donation covers two-years or even multi-year pledges.
Another avenue is available to the “over 70” crowd who have an IRA and are required to take a minimum distribution from that IRA. If you give an amount directly to the charity from your IRA, and the total charitable giving from the IRA doesn’t exceed $100,000, that distribution is never included in your income; it completely skips your return. Thus, you can still avail yourself of the standard deduction, give to your favorite charities, and receive what is effectively a 100% benefit. These new provisions remain in the law until 2025 and are scheduled to expire for tax years beginning in 2026.
The professional fundraisers would tell you that donors give to charities because they want to and not for the tax deduction. This is referred to as “right brain” giving versus “left brain” giving – taxpayers who give from the heart, not for the tax benefit. Next year will validate or eliminate that thesis!
I was quoted in the following The Morning Call article, In Lehigh Valley, new tax law reshaping messaging, strategy for charitable giving, and WFMZ article, Many wonder how tax code changes will affect giving, weighing in on the effects the new tax code will have on charitable donations. Total donation numbers won’t be in until 2019. Time will tell…stay tuned for an update!
If you have any questions about this post or any related matter, please feel free to contact me at dlaptuka@norris-law.com.