The recently approved tax reform has many implications for American taxpayers, including those who are charitably inclined. Previous tax law provided a deduction to those who donated to charity while also being able to itemize his or her deductions. Although the overhaul to the tax law did not directly change the deduction for donating to charities, the new legislation will impact the tax benefit of these donations for many taxpayers moving forward. Included in the tax reform, the standard deduction will increase to $12,000 for single filers and $24,000 for married filing joint filers in 2018. With this increase, many taxpayers that previously itemized his or her deductions may not find the benefit in doing so going forward.
Many nonprofit organizations across the country are concerned about the potential decline in charitable giving due to the possible change in tax legislation. Brian Gallagher, President and CEO of United Way Worldwide, discussed his concerns with Michel Martin from National Public Radio (How The Tax Rewrite Could Impact Charitable Giving, 2017). By Gallagher’s estimations, approximately 30 million less people will itemize their deductions than under current tax law, removing the tax benefit for donating to charities. Gallagher stated that United Way has worked with the Indiana School of Philanthropy to model the potential reduction in charitable giving and the results are significant:
- 82% of current donors itemized his or her deductions under the previous tax law
- Estimated decline in charitable giving under the proposed legislation equates to around $13 billion
CBS News reported that with the new legislation, approximately 10% of taxpayers will continue to itemize his or her deductions, down from the previous figure of one-third. This decline will undoubtedly reduce the benefit of donating to charitable organizations for tax purposes for many taxpayers.
Gallagher does not question the fact that Americans will still give, his concern lies with how much they will give and the impact to the people that his organizations serve.
TD&T is working with our clients to help best plan for the proposed legislation and maximize the tax benefits for contributions to charity. If you are interested in knowing how the proposed tax legislation might impact the deductibility of your charitable contributions, please reach out to any of our nine office locations to speak with a tax specialist.
Ryan Boatman, CPA, Senior Tax Associate