Tax Reform and Its Impact on Non-Profit Giving

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In December 2017, comprehensive tax reform was passed. In working with non-profit organizations, many are concerned with how the new tax laws will impact charitable donations in 2018 and beyond. The concern comes from the fact that, in the past, charitable donations were deductible for individuals who itemized deductions on their individual tax returns. While this deduction is still allowed and the limits have actually increased under the new tax law, the concern is that the standard deduction increased, therefore resulting in less people estimated to be able to itemize their deductions in 2018 and beyond.

While the tax changes impact everyone differently, as I have talked to people in the last couple months I have observed the following:

  • People donate to non-profit organizations for different reasons, but for the most part, they donate because they believe in the mission of the organization and not just for the tax deduction.
  • Organizations don’t know which of their donors get a tax benefit (deduction) from their current donations, so hard to tell how they will be impacted going forward.
  • Some individuals will still be able to itemize and therefore get a tax deduction for their contributions. This is because of the following – to itemize as a married couple, you would need to have over $24,000 of deductions to benefit from itemizing, versus the standard deduction. Under the new tax laws, your state tax deduction (which includes state income taxes, real estate taxes, excise taxes, etc.) is limited to $10,000. The next deduction typically taken by individuals who itemize is mortgage interest. To reach the $24,000 standard deduction, you would need to have $14,000 in mortgage interest. This would equate to a $350,000 mortgage at 4%, which isn’t unheard of in Eastern Massachusetts. In this case, an individual would benefit from itemizing and receive a deduction for the value of their charitable donations. A majority of other itemized deductions under the old tax laws are no longer allowed.
  • Some individuals may bundle multiple years of donations into one year under the new tax law to get the benefit or set up a donor advised fund to continue to donate to their favorite charities each year.

While we can’t say for sure how the new tax law will impact each organization or each donor, I believe most individuals give to organizations from their heart and not based on their tax return.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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