The New Tax Law and Charitable Giving
There is a lot of concern among nonprofits when it comes to individual donations in 2018 and beyond because of the new tax law. Estimates from the American Enterprise Institute show charities could take in $16 billion to $17 billion LESS than what they received in 2017. Here’s why it’s happening and another possible change in Congress that could help.
Tax Law Changed Standard Deduction
When Congress passed the tax law changes, they gave less incentive to itemize deductions because they nearly doubled the standard deduction. Married couples filing jointly will see a $24,000 standard deduction. That’s up from $12,700. Families with children will also see credits for each child jump to $2,000. The rise in standard deductions means millions of Americans won’t need to itemize. If itemized deductions no longer provide a tax incentive and are essentially equal to the standard, charitable giving may decrease.
Another way to look at this: about 27 million people currently itemize deductions for charitable giving. That number is expected to drop to 16 million.
The good news is that 99.9% of people do not donate to charities simply for the tax deduction. Many people will continue to give. However, if the amounts do drop, a $17 billion decrease is substantial.
We do know of several nonprofits that are seeing sharp declines in individual giving this year when compared to this time last year. It’s also important to note that charitable giving has seen a decline every year for the past decade.
The “Universal Charitable Deduction”
In late May 2018, a Republican and Democrat introduced a bill called the Charitable Giving Tax Deduction Act. The law would allow ALL taxpayers the option to write-off donations regardless of their decision to take the standard deduction or if they itemize. The bill also wouldn’t cap the amount people could give and deduct.
While the bill has been introduced, it is awaiting more signatures and then a hearing before possibly getting a vote.
It will be important for nonprofits to find ways to talk with their donors about these changes since many people believe they cannot deduct donations anymore. This is untrue. Nonprofits and their donors will need to research whether itemization will be worthwhile with the standard deduction doubling and the tax rates decreasing.