Fewer Charitable Giving Deductions, or More, in 2018?

By doubling the standard deduction for the 2018 tax year and going forward, the law known as the Tax Cuts and Jobs Act of 2017 may potentially reduce the number of U.S. taxpayers itemizing deductions by 25%. That means no specific deduction for charitable giving except among about 5% of the U.S. population.

Nonprofits worry that the changes to how many Americans file their taxes could also reduce charitable giving. Since individuals will no longer get the tax advantage, their actual cost of giving will go up.

However, a lower tax rate for many Americans may offer more cash flow that increases their ability to give. The change in tax withholding guidance from the Internal Revenue Service should begin to show up in employee paychecks by February, according to an IRS update on January 5.

The Tax Act does increase the percentage of charitable contributions allowed for deduction. It increases the percentage limit for charitable contributions of cash to public charities from 50% to 60% of an individual’s adjusted gross income. It also eliminates previous limits on high-income individuals and couples who deduct charitable gifts. 

The Act permanently denies a charitable deduction for payments made in exchange for college athletic event seating rights. There is also a permanent repeal to the exception of contemporaneous written acknowledgment for contributions of $250 or more based on a properly filed charitable organization tax return. In other words, taxpayers should get the proof in writing for large donations, and they’re on their own for season tickets to their alma maters.

In the future, there may be a universal non-itemizer deduction specifically for charitable giving if some Congressmen continue to lobby for it. For now, not-for-profits that rely on donations should consider their donor strategies going forward. “Tax deduction” is no longer a strong marketing message. Hopefully, that’s not the only reason people give anyway.

If you have any questions about the impact of the new Tax Law on your organization, contact LvHJ.

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