YOU ARE JOINING US TO TALK ABOUT CHARITABLE GIVING THIS MORNING. WHY?
As we kick off the first filing season under the Tax Cuts and Jobs Act, which was signed into law in December 2017, there are questions about how it could affect charitable giving. While Americans are incredibly generous, and most people give to charity because they want to help, the tax code does affect giving. While one of the objectives of the 2017 legislation was to make the tax filing process easier by increasing the amount of the standard deduction, it also reduced the number of people who will use itemize deductions, including charitable donations. Many experts believe this will result in a decrease in giving.
WHY DOES A HIGHER STANDARD DEDUCTION AFFECT GIVING?
Under the new tax law, the standard deduction was raised from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for couples. This means that an individuals and couples will have to have deductions over $12,000 and $24,000, respectively in order to go the itemized route when filing their taxes, and a minority of Americans fall into this category. Indeed, a new congressional report estimates that just 18 million households are expected to itemize deductions this year, down from 46.5 million last year. And without itemizing, these taxpayers lose all tax benefits associated with charitable giving. In addition, the Tax Cuts and Jobs Act also lowered the top marginal tax rate for individuals and couples from 39.6 percent to 37 percent. Reducing the top marginal tax rate might also result in a decline in giving because it reduced the tax incentive of charitable donations. Together, these changes have many charities and nonprofits worried.
HOW MUCH WILL THESE CHANGES REDUCE GIVING?
While no one knows for sure, the estimates are sizable. The American Enterprise Institute estimates charities will collect $16.3 billion to $17.2 billion less in donations this year as a result of the new law. The Urban-Brookings Tax Policy Center projects that charitable will drop by one-third, from $63 billion to $42 billion, due to the elimination of the federal tax incentives.
ARE THERE STILL WAYS WE CAN GIVE AND REDUCE OUR TAX BURDEN?
There are still a couple of options out there. One way to take advantage of your giving for tax purposes is through gift bundling. Basically, you combine multiple years of giving to your favorite charities into a tax year, allowing you to reach an amount that will allow you to use itemized deductions on your taxes. If you are over 70.5, the new tax code allows you to make charitable gifts tax free from your IRA. Finally, you can give non-cash assets. By giving stocks or other appreciated assets, such as artwork and antiques, which have grown in value, you can avoid capital gains taxes.
IS THERE ANY GOOD NEWS FOR CHARITIES?
There is some good news. While the new IRS code may eliminate the tax incentive, it doesn’t eliminate the desire to do good. In fact, a new report from the Indiana University Lilly Family School of Philanthropy projects total charitable giving will rise by 3.4% in 2019 and by 4.1% in 2020. Specifically, it projected that giving by individuals would grow by 2.1% and 3.4% in 2019 and 2020, while predicting corporate giving would grow by 3.2% and 2.6% over the next two years.
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