So, what is one to make of the new Tax Cuts and Jobs Act (H.R. 1, “TCJA”), passed by Congress in late December, and its impact on charitable giving?
The new law doubles the standard deduction in 2018 for a single person to $12,000 and for a married couple to $24,000. For millions of taxpayers, it may no longer make sense to itemize, and one can only deduct donations if you itemize.
Also, under the prior law, taxpayers could not deduct more than 50% of their adjusted gross income in charitable contributions. The new law, however, increases this limit to 60% for those individuals who itemize their deductions. This limit increase could be a motivating factor for donors – especially those who are wealthy and more likely to itemize – to make larger donations to charities next year.
Unfortunately, the simplification is expected to result in only 5% of individuals, instead of 30%, itemizing their returns, according to Urban-Brookings Tax Policy Center.
The Chronicle of Philanthropy notes that individuals give more than $300 billion per year in donations, but estimates are that such donations may decrease between $12 and $20 billion with the changes in the tax code.
“So, it’s not a giant hit, but it certainly is important, and what charities are worried about most is that it may be an uneven hit. Community charities, local groups, smaller nonprofits, those are the ones that may feel more of the pain. And so most charities are very upset that not every American gets this encouragement to give, that now the very wealthiest are the only ones who get that special incentive to give,” according to Stacy Palmer, editor of The Chronicle of Philanthropy.
One additional implication of TCJA is that many donors make charitable gifts in their will to lower their estate taxes. Under the new law, estates worth up to $11 million per person ($22 million per married couple) are exempt from the federal estate tax starting in 2018, double the amount in 2017.
For nonprofits, operating budgets for next couple of years should factor in a level of decreased individual donations until you have a better understanding of how TCJA impacts giving to your organization. The change may also require that your organization makes a greater level of investment in brand awareness and engagement. Your interaction with donors cannot be a fourth-quarter “help us now” appeal, but a year-long conversation informing and educating your individual donors about the amazing services and benefits you provide to the community and people you serve.
Also, it is more important than ever that your organization’s culture of fundraising begins and ends with your board of directors and management-level staff. This not only includes 100% giving by your organization’s leadership, but an unapologetic, constant, and passionate outreach to potential donors on the importance of supporting your organization. Every board meeting should dedicate a portion of the agenda to how the organization’s leadership is helping to advance development efforts.
At year’s end, this will far outpace any line-item incentives your organization may have relied on in the past.