Nothing ruffles donor’s plans for giving like tax reform. The problem is, there’s no way to know what the final shape of this year’s tax reform will be. Do you give now, or later?
Charitable giving is not just about the tax deduction. People at all economic levels give to support causes that matter to them, hoping that their gifts will make a difference in the lives of others. However, the tax incentive does encourage generosity, and if Congress passes legislation that eliminates tax breaks for giving, that could have a negative impact on non-profits. According to the Congressional Budget Office, tax incentives matter, whether they are made while you are alive or after you die.
CNN Money recently reported in the story, “How tax reform could hit charitable giving,” that Republicans are proposing to reduce or eliminate key tax breaks for giving, which some note has worried charitable organizations.
Republicans have proposed to nearly double the standard deduction, lower income tax rates, and repeal the estate tax. Most believe the charitable deduction would remain, but an increase in the standard deduction would result in fewer people itemizing deductions and being able to claim the break. Lowering tax rates also would make the deduction less worthwhile for those who still take it.
The double impact of doubling the standard deduction and decreasing the highest tax bracket to 35% from 39.6% could reduce giving by between $5 billion and $13 billion a year, or up to 4.6%, according to research by Indiana University.
An increase in the standard deduction would have the greatest negative impact because it would reduce those who itemize to just 5% of filers, compared to about 30% currently. This is because the main reason to itemize, is when your deductions are more than the standard deduction.
The 25% who used to itemize will probably give, but maybe less.
Charitable groups battling to protect the sector have proposed making the charitable deduction “universal,” meaning that anyone can take a charitable deduction, even in the absence of itemizing. That may not be an acceptable solution, since this kind of deduction is estimated to potentially cost the federal government between $191 and $515 billion in lost revenues over the next decade.
Reference: CNN Money (August 6, 2017) “How tax reform could hit charitable giving”