There’s a lot of talk around the new tax overhaul bill that the president signed just before Christmas – what will this mean for me and my family? What will this mean for my company? What will this mean for philanthropy? And while we’re not interested in discussing politics here, we want to share its potential impact related to our nonprofit clients.
The Tax Deduction Incentive
The public discussion revolves around the tax bill reducing the number of taxpayers who qualify for tax deductions from charitable donations. For the 2017 tax year, the standard deduction for single taxpayers is $6,350 and for married couples is $12,700. This new legislation roughly doubles the standard tax deduction to $12,000 for individuals and $24,000 for couples. Increasing the tax deduction likely reduces the incentive for individuals or couples to give marginal donations to charities – unless they can deduct $12,000 or $24,000 per year, respectively.
What this Means for Nonprofits
Nonprofits have reason to be concerned that there will be a decline in charitable gift giving from their smaller-dollar donors because of this increase of the tax deduction. If you can’t itemize deductions at a quantity to make it all the way up to the new standard deduction level, there’s no tangible tax advantage to donating to 501(c)3 eligible organizations.
To be clear, the standard deduction has been around for years (since 1944 to be exact). But by raising the deduction, it may mean fewer Americans will be less incentivized to give. Marketwatch estimated the impact could be as high as $21 billion -marginal shifts in behavior of giving can have serious effects.
There is, however, a clear counterargument that the macro-economic growth that would come from the tax bill, would bring enough additional resources to enough high net worth individuals that charitable giving would actually increase. The standard deduction increase disincentivizes smaller donors, but other tax bill provisions increases the ability of larger donors. The strength of which side wins that tug-of-war is the heart of the political debate.
According to The Washington Post, “Nonprofits have long noticed that the wealthy are more likely to cut big checks to support museums and universities, while smaller donors tend to give to social-service agencies and religious organizations. Charities fear that this shift could change how the public views donating and alter the priorities of nonprofits.”
The newly passed standard deduction will not be in affect when you file your 2017 taxes this April. It could, however, begin impacting donations now that we’re in 2018.
Some people may not be aware of the tax code changes, not realizing that the higher standard deduction means their individual donations might not get them over that hurdle. Some may bundle several years of donating together into a single gift in order to deduct that amount from their taxes. Nonprofits may have to rely on higher-end donors or on people’s decisions to donate because they are passionate about or connected to the organization.
While this is a lot of speculation, we do know this: charities’ missions are not changing and the need for Americans’ help to resource those missions is not changing. At Magneti, we will continue to work hard to move the needle for nonprofits that we serve – we soldier on together.
We likely won’t alter our marketing strategies until we understand more of the effects of charitable giving in 2018. But you can plan on discussing this with our team during your next monthly meeting if you’re one of our nonprofit clients. And, as always, reach out before then if you want to chat about it!