There has been some alarm in the charitable community about the impact of the tax reform on charitable giving.
Even though the Tax Cuts and Jobs Act (TCJA) went into effect on Jan. 1, it’s still going to take a while to truly figure out all the winners and losers. Even so, some fear universities, charities, churches and foundations (basically, any organizations that offers a tax benefit for giving), will be left holding the short end of the stick.
Due to the higher standard deduction, it’s estimated that 90 percent of people will make plans to alter the way they file their taxes, essentially eliminating the tax benefit traditionally awarded to those who give to charity.
Standard deduction |
||
|
2017 |
2018 |
|
|
Single |
$6,350 |
$12,000 |
|
Married Filing Jointly |
$12,700 |
$24,000 |
|
Married Filing Separately |
$6,350 |
$12,000 |
| Head of Household | $9,350 |
$18,000 |
The question nonprofits are left to grapple with is exactly how much do people, their donors, care about the tax break?
Are There Still Tax-Efficient Ways To Make Gifts Post-Tax Reform?
We do have some good news for our friends in the not-for-profit sector. All is not lost. There are still several tax-advantaged ways to make gifts to charity. The trick becomes effectively communicating the following tactics to your donors. In fact, the benefit of these tax advantages can ultimately increase the amount of the gifts you receive and encourage donors to make gifts sooner than they might have done in the past.
Check out our Tax Reform Resource Center!
- Encourage gifts of appreciated property, such as publicly-traded securities and real estate. Prior law provided a double tax benefit for gifts of appreciated property to charity held at least one year. The donor enjoyed a fair market value income tax charitable deduction plus avoided capital gain income on the appreciated property. Now, with the TCJA in play, donors can still receive the double tax benefit if their gift is large enough to allow them to itemize. And even donors who make modest gifts who don’t itemize will still enjoy the complete avoidance of capital gain income on contributions of appreciated property.
- Talk-up making gifts to charity using the Charitable IRA rollover. Donors older than 70 ½ can make a direct transfer of funds up to $100,000 to a charity of their choice from an IRA. The rollover will count toward satisfying the donor’s required minimum distribution and will not be included as income to the donor. Using this scenario, the donor avoids all income tax on the withdrawal, even if they aren’t able to itemize. The net effect of making a charitable IRA rollover gift is to keep at least the same tax benefit as donors who still itemize their deductions.
- Another option, charitable stacking or lumping. Instead of giving $10,000 per year over a period of five years to a charity, donors might consider giving $50,000 in one year, which would take them above the new $24,000 standard deduction, thus providing a tax benefit for their contribution.
At this time, it’s difficult to predict with precision how the TCJA will affect charitable giving. After all, a donor’s desire to give is rooted in much more than dollars and cents. Charitable giving is driven by the emotional connection that a donor has with a charity and how the charity expresses the donor’s values and concerns. While tax policy can influence charitable giving behavior, ultimately taxes aren’t the driving factor behind one’s impulse to make a donation.
Email Rea & Associates’ team of nonprofit specialists to discuss additional strategies or messaging your organization can deploy moving forward.
By Todd Mizer, CPA (retired)
Additional nonprofit insight available
The Tax Cuts and Jobs Act changes a lot in the nonprofit area. This webinar explains some of the major considerations organizations are facing. You can also flip through the slideshow below for an overview.