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Will the Federal Tax Bill Change Charitable Donation Behavior?

June 19, 2018

Lynn A. O'Marra, Esq.
Principal

Back in December, President Trump signed the Tax Cuts & Jobs Act, putting into motion the first major tax reform the country has seen in 30 years.

In this article, we’ll focus on the new tax code’s potential impact on charitable contributions. Specifically, we’ll discuss 1) why non-profit organizations are concerned, and 2) what regular donors should think about moving forward.

Why are non-profits concerned?

The non-profit industry has not been shy about its stance on the Tax Cuts & Jobs Act. Non-profit organizations across the country started voicing their donor retention concerns well before the Tax Cuts & Jobs Act was even proposed. Once the bill—which, in its final version, included several provisions that the non-profit community generally opposed—was enacted, those concerns grew louder.

The National Council of Nonprofits (NCN) released their analysis of the bill shortly after it was signed into law, saying “…with very few exceptions, the bill harms the ability of charitable nonprofits and foundations to address needs in communities and advance their missions.” 

One of the most important changes in the bill—and certainly one of the most concerning changes for the non-profit industry—was the near doubling of the standard deduction, increasing from $6,300 to $12,000 for individuals; from $12,600 to $24,000 for married couples; and from $9,350 to $18,000 for heads of households. These new rates apply starting this year and are set to expire in 2025.

The reason behind the concern is simple: By doubling the standard deduction, taxpayers will be less likely to itemize donations and, therefore, less incentivized to write their annual year-end checks to their favorite charities. The NCN believes the standard deduction increase alone will shrink charitable giving by more than $13 billion every year, leading to a loss of at least 200,000 non-profit jobs across the country.

Time will tell if the NCN’s predictions prove true, but—in the meantime—it’s important for taxpayers and non-profit leads alike to understand other provisions in the Tax Cuts & Jobs Act that may impact charitable giving.

  • Estate tax changes: There is an increase in the estate and gift tax credit exclusion to $10 million effective after 2017 and before 2026. The final legislation does not provide for a repeal of the estate tax at any point in the future.
     
  • Colleges & universities: The final legislation repeals the 80% deduction for contributions made for college and university athletic seating rights. The repeal is effective for contributions made after 2017.

What can donors do?

Let’s say you have a favorite non-profit organization that you contribute to every year, but your annual donation doesn’t get you over the new, increased standard deduction.

What can you do?

One option is to simply just write your check anyway, and forgo the tax benefit. Folks choose to donate for all kinds of reasons, and reaping the tax benefit isn’t always at the top of donors’ minds when they choose to support a cause they believe in.

Another option—an option that we feel will become a popular strategy in the next few years—is to “bunch” your donations. In other words, instead of donating a relatively small amount annually, you can consider donating a larger amount every three years. This strategy can help mid-level donors beat the standard deduction in the years they choose to disburse their bunched contributions.

Finally, a third option is to open what’s called a donor-advised fund. This is a good option for donors whose favorite charities rely on steady streams of annual income in order to maintain their operations. Taxpayers can bunch their donations and disburse them directly into the fund, and then tell the fund’s administrator how they’d like the cash to be spent.

How BlumShapiro Can Help

Like most tax and accounting professionals, we at BlumShapiro have had a busy start to 2018 as we work with our clients to navigate the long list of changes that came with the tax bill. Along the way, we’ve been publishing a steady stream of articles delving into various angles on the topic.

We’ve talked about the changes the bill is bringing to the estate tax. We’ve touched on how the new bill will impact various industries, from manufacturers to long-term care providers to automobile dealers.

BlumShapiro is committed to helping our clients realize savings through efficient tax compliance and effective tax planning. We emphasize timely communication and a team approach to servicing our clients’ needs. Hands-on tax partner and tax specialist involvement is provided to ensure that our clients receive the most experienced and in-depth technical expertise that we have to offer.

 

Advisors | Auditors | Consultants | CPAs - Blum Shapiro is one of the premier public accounting firms in the northeast and a Top 100 CPA Firm in the U.S. Our professionals serve businesses, individuals and organizations in Boston (MA), Hartford (CT), Cranston (RI), Shelton (CT) ,Quincy (MA) and Newton (MA) with audit, tax and business consulting services. Our firm has developed practice areas in automotive, construction, education, government, healthcare, hospitality, manufacturing, nonprofit organizations and professional service firms. New Haven CT, Fairfield CT, Norwalk CT, Waterbury CT.