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Wednesday, December 4, 2019

How Tax Law is Affecting (Your) Giving


Earlier this year, you may remember hearing about the implications of the tax law changes on charitable giving.  The Tax and Jobs Act of 2017 aimed to simplify filing by increasing the standard deduction, which should make many middle-income Americans happy – after all, putting “simplify” and “taxes” in the same sentence should make us feel like we are heading in the right direction.  And yet, as with just about any financial policy and tax change, “simple” is anything but.
Keep reading to learn more about the way the tax changes are affecting your favorite organizations and what they mean for you as a donor...
The 2017 tax reform, and specifically the increased standard deduction, reduced a tax benefit to many middle-income Americans who make charitable contributions. Specifically, the standard deduction was doubled from approximately $12,000 for married couples filing jointly to $24,000 (or for individuals, from approximately $6,000 to $12,000). As a result of this change, The Tax Policy Center estimates:
  • the number of itemizers dropped from 37 million in 2017 to 16 million in 2018;
  • the number of middle-income households claiming a charitable deduction declined from 17% in 2017 to likely less than 6% in 2018;
  • the 39% of households earning $86k-150k that itemized in 2017 likely decreased to about 15%.
The Tax Policy Center also reported 64% of households paid less in income taxes under the 2017 tax reform than they would have under the old laws.  In theory, that means that nearly two-thirds of us have more money in our pockets.  Interestingly, though, a disproportionate number of taxpayers think they paid more in taxes this year, for all sorts of reasons that we won’t get into here, which doesn’t incline one to actually spend more.  The marginal tax benefit of charitable giving decreased the most for moderate-income itemizers and the least for wealthier Americans.  I’ll stop throwing wonky tax numbers at you and leave it with this:  
Giving USA 2019 found there was an overall decrease in giving by 1.7% (adjusted for inflation) from 2017 to 2018. While there are many variables at play, many experts attribute this decrease to the tax reform disincentivizing itemized donations.  This translates to the nonprofit organizations receiving billions of dollars less year over year. These gifts were historically comprised of many, many $10 to $1,000 gifts that Americans made to their favorite causes every year.
Certainly, some taxpayers weren’t really aware of all the changes to the tax law during 2018 or, even if they were, may not have those top-of-mind as they were going about their normal consumer activities.  Even those who were aware didn’t necessarily know if they would be among those who would still benefit from itemizing and went through the entire exercise of calculating all of their potential deductions to see how their own numbers shook out.  Now we know, and personal knowledge will shape our behavior going forward.
The second contrary opinion: People give because they want to, not because they get a tax break.  I love that ideology and I want to believe it.  Nothing would make all of us in the philanthropic world happier than to find out that lo and behold, all these many years when we thought “your gift is tax-deductible” was a compelling statement, we were wrong.  But, we can’t deny that the possibility of a little bonus at tax time doesn’t hurt.  December 31 is by far the biggest giving day of the year because there’s a sense of time running out.  What’s the difference between giving at 11:55pm on the 31 and any time on January 1?  Nothing, except how long you have to wait to claim it on your taxes. If you still don’t believe me, ask any donor services manager at any nonprofit about how many calls and emails they receive between January and April from donors who can’t find their donation receipts.
The third “what’s the big deal” opinion on this issue is that yes, perhaps the Average Joe taxpayers will give a little less, but the wealthier Americans are as generous as ever and they can more than cover the difference.  Whenever I hear that a little part of me withers up and dies.  The very essence of charitable giving in the United States – what makes it such a critical part of our social fabric – is the egalitarian participation by so many. Yes, wealthy donors make large donations that, in and of themselves, can create meaningful change, for which nonprofits are very grateful.  But it is the everyday givers who truly fuel philanthropy. The list of organizations partially funded by the mega-donors is relatively minuscule.  It is the collective of the many smaller gifts from millions of people who care about different issues and causes that fuel all the amazing work in our communities and around the world.  Financial details aside for a moment: Would we really want a small number of people to decide which causes get funded and which do not?  Of course not.  It’s the combination of large and moderate gifts, along with corporate and institutional funding, that truly drive the splendid breadth of local and global solutions every day.
So, problem identified.  Now a path forward. To remedy this situation, identical legislation – The Universal Charitable Giving Act - was introduced in both the House and Senate. The House Bill (H.R. 3988) was introduced by Congressman Mark Walker of North Carolina, while the Senate Bill (S. 2123) was introduced by Senator James Lankford of Oklahoma.  Under the legislation a married couple filing jointly, who use the standard deduction could deduct up to $8,000 for charitable contributions (1/3 of the $24,000 standard deduction), while a single taxpayer using the standard deduction could deduct up to $4,000 for charitable contributions (1/3 of the $12,000 standard deduction) – on top of the standard deduction.  But, before this can gain any ground in Congress, we’ll need to see the fiscal price tag associated with this Act revised by the Joint Committee on Taxation.  While re-establishing a tax benefit isn’t going to suddenly transform charitable giving, it would be an important step in the right direction. 
The Universal Charitable Giving Act encourages all Americans – regardless of their level of income – to support charitable causes. In so doing, the organizations embedded in the communities and causes they serve can continue to do their best to help carry out their vital missions.  But tax law revisions are not going to be a quick fix.  In the meantime, it’s incumbent upon all of us everyday donors to keep charitable giving at the forefront of our spending priorities.
Philanthropy in the U.S. is a long-standing partnership between donors and nonprofits that stands alongside our government to address social and environmental needs.  And while Americans are among the most generous people in the world, we need a tax code that encourages charitable giving – by all Americans, regardless of income – so that nonprofits can continue to help those most in need.

Written by Shannon McCracken, CEO of The Nonprofit Alliance. The Nonprofit Alliance serves as a voice of the nonprofit community to promote, protect, and strengthen the philanthropic sector in the best interests of donors and beneficiaries. You can learn more here: https://tnpa.org

38 comments:

Cindy Brown said...

This excellent article reflects my less articulate thoughts as I made end of year donations today. I chose the short form for last year's taxes, and I confess that my donations are fewer and less this year. Judging from the volume of mail I receive from charities, they need even my small donations. (Please tell them that a once-a-year newsletter is all I need from them, and 4 stars on Charity Navigator! I would pay for some of the beautiful magazines they send.)
I am glad to know that there is an alliance of non-profits and hope you have a lobby. Thank you for the article.

Unknown said...

Our household was one of the 39 million who used to itemize and for the first time in 15 years, was not able to itemize or claim a charitable deduction. It was kind of a shock. Giving to charity, owning a home, or having a mortgage now meant "nothing". However, I made a pledge to myself to continue giving to charity at my prior levels, or more, regardless of the tax law. Charitable giving was something that was an important part of my life. Because of that, I was trying to instill in my two adult children, over the years, especially the 40 year old who used to itemize, how giving to charity, not only is important, but will also help when you file your taxes. No longer is that the case. This is my worry going forward. As my children's income rises, increasing charitable giving will not be something that I can push for other than the intrinsic value of giving. I truly hope the legislation you reference gains traction and have no problem in reaching out to my elected representatives to make it happen. Please keep us apprised.

Unknown said...

While this article share some specific facts and general information it omits a very important area of discussion. And this is the responsibility of the charity to pay fair salaries to all staff and not excessively high six figure incomes to a CEO and a few top executives. Also, to keep expenses low so that a majority (say 90%) of the donation dollar actually goes to the purpose for the organization's existence.

Mary Lou said...

I agree completely with all of the above comments. And I am all in on the Charitable Giving act. If you know when and if it comes up for a vote, please inform us, as I, too, will contact my legislators urging passage of this bill.

Unknown said...

My giving in 2018 was enough to continue itemizing, filing Single. My total tax bill increased because of the elimination of most Miscellaneous Deductions. Thanks to the invaluable information on Charity Navigator I can set an absolute policy of NO contribution to any organization that does not spend at least 90% on Programs. The Charity Navigator Rating System helps narrow the field even further. I want my hard earned money to count

Mary Lou said...

I agree with all of the above comments and am all in for the Charitable Giving act. When and if it comes up for a vote I will contact my legislators to urge it’s passing.

Unknown said...

AM just do fess I am a Tax challenged Lady. for far to many years I have taken all my Tax filing to H&R Block.That being said, I found this article an amazing light shone in my Tax darkened brain. So the long of it is I am on Soc Security and give at a consistent rate to pre retirement.Can't help it,when I see injustice for those less fortunate,animal or human,I must. Now TRUTH be told my list over the last few years has become a bit smaller and less random shotgun giving, to a list of about 10 . In the bygone, a standard deduction is far less than I give in cash and goods. ( I've moved 3 times in 10yrs downsizing) This Giving Tax "adjustment" is a kick in the teeth to Retirees like me . ..and there's a lot of us !!The short of it ...WRITE your to your respective House and Senate Reps !!!

Unknown said...

Anyone who thinks the new tax law didn't hurt charitable giving is just mistaken especially when you look at the people living in high tax atates like NY or California. Income taxes and property taxes being limited to $10,000 a year means the first $14,000 of your charitable contributions were not worth anything in terms of a tax deduction. This was when the standard deduction was raised to $24,000 for a married couple. Did people still contribute. Of course but anyone who believes the impact was minimal just doesn't get it. If you were in the top tax bracket your $14,000 charitable deduction only cost you about $8,400 in 2017. That lose of $5,600 in taxes did mean people gave less. One way to address it was to take the standard deduction in 2018 with no contriibutions and double up the next year. While not a perfect solution it did give you a better result than giving up the $14,000 in the standard deduction one year. Yes you still lost it but now it was spread over 2 years reducing the impact by 50%. This will continue to adversely impact charities unless the law is changed.

BL Worrilow said...

Last year was the first year we could not itemize. I suspected that would be the case, since I had read the new tax laws and understood that likelihood. I have still donated my entire social security income plus this year, but have found myself supporting some "charities" that are not 501c3 or deductible more than I have in the past. So it is still somewhat equal in total amount. As a long time member of CN, I do check out all charities I give to (even the unrated ones, I read a lot of 990s) and one of the things that will cause me to stop donating is when they share my information, because in doing so they fill my mailbox with requests for money from places I have never donated to nor would. And all the calendars I receive go directly to my recycling bag. I think less of charities that send me those, address labels, and other stuff. I don't need that.

Unknown said...

The blessings that I've been given to share with my brothers and sisters in this world are to be used for that purpose only. I thank Charity Navigator for openly showing the charity as it is, not as to what it claims. I have discontinued contributions to many of the big name "charities" as a result, because the funds that I invest in them and their work seem to wind up in the CEO's or president's compensation package instead of doing the work that they claim to be doing. A true charity in my mind is one that is spending at least 95% of their funding on program expenses. Any less in my mind is suspect, and I will not support them.

Blogger ID Required said...

The article did not mention a very important vehicle for making donations, a Qualified Charitable Donation from an IRA's Required Minimum Distribution (QCD from an IRA RMD! Wow, that was a mouthful!) Since I retired, I take the standard deduction. The QCD allows part or all or the annual RMD to be non-taxable. There are certain restrictions, so do your research.

Unknown said...

We did rethink our charitable giving. While we didn't reduce the total amount, we decided to make only 5 major contributions all through our IRA accounts. The $$ amount is perhaps a bit higher than the total of the many smaller donations we made before, but now it is coming from tax free dollars. I hope this IRS IRA rule isn't changing.

D. Goodrich said...

While it is certainly true that people give because they want to give, and not because there is a tax deduction, the amount they give or can afford to give is affected by the tax consequences. People will give more when they can take a tax deduction. This fact seems to be reflected in your numbers.
Another important feature of the 2018 tax legislation is the $10,000 (on a joint return) limitation on deducting state and local taxes. The three main deductions for most people are state and local taxes, mortgage interest, and charitable contributions. If you are a renter or have paid off your mortgage, you will have no interest. So you can deduct $10,000 of taxes plus charitable contributions, or take the $24,000 standard deduction. You have to make contributions of $14,000 before getting any benefit.
Anyone who has reached the age of 70 and 1/2 and is required to take distributions from an IRA should have the IRA fiduciary make contributions directly to charities. In this way you can effectively obtain a charitable contribution benefit and also take the standard deduction.

Unknown said...

Interestingly, we previously regularly donated to a wide range of charities, including our church, and we used Charity Navigator to assist in validating whether a (non-church) organization efficiently and effectively managed our hard-earned donation. However, our donation activity changed long before the tax law changed. And it had nothing to do with tax benefits.

We now apply a far higher portion of our money to our church and the primarily other charity, amongst just a few others, is the Salvation Army. We typically donate in excess of 10% of our very modest income. Ironically, neither organization is “rated” by Charity Navigator.

Even as a church member, it is difficult to justify the argument that tax law should be used to support or encourage social interests. Every individual has different opinions as to what “social good” is more important than another... or whether it is even “good” in the first place. Therefore, our government should not force everyone to “support” “social goods” they do not believe in via favorable tax treatment for non-profits. Leave it in individual hands to decide where they wish to freely donate.

Ideally, the purpose of tax law should be to simply fund the absolutely necessary functions of government and nothing more. The new tax law was a significant step in the right direction, even if that was not its goal.

Unknown said...

I would donate no matter the deduction. I was taught to give back what i could afford no matter the deduction. i try to donate to local charities who help the people that I live side by side with. When I ran a large firm the deduction was more important because I had far more money to give.
RICHARD ROTH JR. FAIA, RIBA

J. D. Perera said...

We give because we enjoy it and want to help causes that we believe in and not just door an itemized tax break. That said, the new 2017 tax reform has nothing to do with it. Truth is very important to us and the pie chart of a charity says much about the charity and not the CEO’s salary. We realize that there are a couple who are self sacrificing at doing their job and are not in it just for themselves. People have to truly know all aspects of the charity and not just that it sounds good.

Unknown said...

This change has allowed me to become more flexible and democratic in my giving. Freed from having to factor 501c3 status into my decision making my philanthropic budget can been devided into smaller amounts given to a larger variety recipients. For example, efficient direct assistance to needy individuals, where the overhead is 0 and the benifit is 100%, is now in the mix.

JFT said...

I don't worry as much about tax policy as I do about an excess of Charities on the same need, the blight of fundraising services who are major polluters with masses of junk mail, and the overpayment of CEOS. I suggest a standard- three mail solicitations and you're out. Anyone paying their CEO more than the President of the USA's salary must explain in detail why they need to do so.
And when almost everyone including charity navigator suddenly has large quantities that have to be matched by a certain date it certainly looks like the ploy of the day. We know the needs are there and we'll keep giving but we are sharply reducing the number of organizations to which we give.
Also the term "Not for Profit" is the basis for more lies than anything else in American policy. Charities need to be clearly separated from other organizations that hang on this lie.
Jim Thorpe, Laguna Woods, Ca.

Vialado20 said...

What really drove my reduced giving this year was not that I couldn’t itemize but rather that my taxes went UP by a factor of four last year, because I live in a high property tax state. So my entire giving budget basically went to the IRS. This aspect is not mentioned in the article but is definitely a factor - I would pay attention to where giving decreased as well.

Unknown said...

Well, I'm sure some of the readers know this. But haven't offered it so I will. Don't give one year or two years, and then the 2nd or 3rd year, whatever is your case, combine your giving to reach the $24,000 threshold to itemize. Yes, it will hurt your favorite charities that you don't give to in those lean years of not getting your donation, but those charities will eventually get what you would have given in each of the years that you didn't contribute, by combining and giving. Problem solved!

Unknown said...

I am wondering if as charitable contributions decrease are donations to candidates and lobbying groups increasing.

Unknown said...

I am in complete agfreement with CIndy Brown's comments, especially the one regarding the volume of solicitations I receive from each charity. I need, at most, two solicitations each year and the 4 stars from Charity Navigator. In addition, there are some causes for which there are multiple charities soliciting and all of these have identical or closely related missions. Some of these need to merge or fold.

Unknown said...

I was able or deduct my charitable donations in 2018 but in 2019 my le3vel of giving has decreased due to the tax law. I sincerely hope congress passed the a law to allow those who give to continue deducting a portion from our income tax. I am concerned about the amount of mail I receive from charities I no longer support and those I do. If I were in charge of a non-profit and reduce my advertising cost by culling out those persons that have not given to my charity in the last 5 years or less and only send reminder to those that give once or twice a year with the obligatory calendar, if warranted. I give because I believe in giving to charities that manage their expenditures well, pay their CEOs reasonable salaries, and give over 90% of what they take-in for direct support of the charitable work. There are fewer charities that meet that criteria and I give to many of them.

Unknown said...

We were still able to itemize last year and will again this year. We give because we are able [and grateful], and will continue to do so disregarding tax code changes. I do, however, support the proposed changes to current tax law. Separately, I agree with others; I don't need to be contacted every month by the charity. Neither will I support charities whose executive compensation seems [to me] to be unreasonable or whose expenses are not as favorable as a comparable charity.

chaosmanor said...

A marvelous blog entry, one which I truly found to be very useful, as well as reflective of our personal situation. I easily can believe that the (overwhelming?) majority of "small" donors have continued to donate despite the changes in tax law. I also am certain that many of them have decreased the amount per donation, as well as the number of organization to which they donate. We certainly have. $200 in 2016 became $100 in 2018, and $50 or $75 this year. I also "culled" several organizations. Next year will likely see a continuation: even fewer charities will receive even smaller amounts, although, to be fair, now that I'm retired, we need to be more mindful that "Charity begins at home." I hope that altruism is not dying. Giving it a little help by giving us donors something back would definitely be nice.

Tamara said...

It seems that the "Universal Charitable Giving Act" was introduced in late 2017 and nothing further was done except it was referred to respective committees. Given that it has languished "in committee" for so long, it is doubtful anything will move forward without a major effort to call this to the attention of our elected representatives. (Anyone want to start a call in/write-in effort?

Also since it was the previous Congress, do they have to start over again? I just don't know.

Unknown said...

I totally agree with the above statement. I always check Charity Navigator to see what the CEOs are paid. If I give locally to an art group, etc., I know it all goes to the organization. I think Charity Navigator for keeping us informed.

jeantoo said...

I have often chosen not to give to certain charities because the CEO salary is between $500,000 and up to $1,000,000. I know they do good work but they could use the excess salary money for their mission. I always look to see the percentages of the total that go to fund raising, expenses etc and whether close to 99% goes to the mission.
I am an old lady.

Unknown said...

Thank you for posting this article. It articulates exactly what I've been pondering for myself. Earlier this year, when I filed my taxes for 2018 using Turbo Tax, I was both heartened and dismayed by the fact that, after all the deductions, the software tool recommended that I simply use the Standard Deduction. I was heartened by the fact that the process seems simply now, but also I also thought to myself, "What was the point of doing all of those last minute donations in December of 2018?". If I'm truly honest with myself, while I love giving to charitable causes that I care about, there was always an extra incentive with the tax donation to donate even more broadly. I'm concerned that over time, that lost incentive will end up with me not making that conscious effort to donate at 11:55 pm on December 31st.

Unknown said...

Bill Murray said:
While we itemized deductions for many years in the past, the new tax law provides a standard deduction exceeding our normal itemizations. Hence, we received no tax benefit for charitable giving. As we are retired and take minimum deductions from our 401Ks, we choose to use the majority of the RMD for charity. Consequently, the majority of our RMD does not increase our income and income tax is not paid on the RMD as usual. Retirees with 401ks and RMDs have no need to decrease charity because it can't be deducted.

Dick & Mary Ann said...

I don't understand what you said about the bill.... If we give more than $8,000 as a couple, then how does that affect the standard deduction??? or would we not get credit for the rest of what we give???
We actually gave more this year than last, not because of deduction, but because of need of others and the Lord provided for us abundantly.

Dick Lehmann said...

After the tax law changes took effect, we give more to charities than ever by taking advantage of Qualified Charitable Distributions (QCD's). Being past the 69 1/2 age limit we take Required Minimum Distributions (RMD'S) from pre-tax investments. Perhaps you are aware that by donating RMD monies directly to a charity we get credit for the RMD and don't have to pay tax on the donation. This means the donations are really tax free. We would donate to church and other charities no matter what so it is a real bonus to not have to pay tax on those donations.

Charity Navigator is a primary source of information when I am vetting a charity. I too prefer to not donate to a charity who pays huge salaries to management.

I struggle with the question of how do we donate to a charity and void getting a plethora of mailings begging for more.

Curmudgeon said...

I live in NYC, one of the Blue States punished by the Trump/Ryan Tax Law. On what is a "modest" salary of $250K, I lost my ability to deduct my $60K paid for State & Local Taxes (SALT) and took the Standard Deduction instead - so YES, I had to cut back on Charity donations.

BarbInMich said...

We, like others noted above, have not decreased our charitable contributions since we were able to stop itemizing. I would like to think people make such contributions because of the need, not just because they got a tax deduction for doing in the past and now they don't.

BarbInMich said...

We have not cut back our contributions due to the changes in the tax law, nor did we in 2018. Charities still need our financial help!

BarbInMich said...

We did not cut back on our charitable giving when the tax laws changed. These groups still need our support!

Unknown said...

I really love giving to good charities. But there are so many overlapping areas and I have to budget what I give. At the beginning of each year I choose about 8 to support. Four get small monthly donations, and the others I send 2-3 checks a year.

Not only am I overwhelmed by mailings from the others, but also from the ones I am already supporting. I keep a large basket next to my chair for recycling this type of mail. It overflows weekly. I have tried to request that I only receive online requests to no avail. And although I enjoy reading about their work I would prefer to receive newsletters online.

I am not the only one,I believe that many charities could reduce their costs by eliminating much of the paper mail they generate by going to e-mail or by cutting back on the number requests they send. AS for thei magazines and calendars, I will gladly pay for the ones I want.,

In addition to these mailings, because of the coming election, I am also receiving political mailing.

I live in a two person household and am now averaging 70 items a week.

Please just STOP.

Unknown said...

Like most people I am worn down by the mailings I get. What is especially annoying is after you make a donation you get a letter thanking you and included is envelope for you to make another donation. Also, giving your email address to get your receipt leads to endless emails all year long. Again, you give an online donation and get a thank you - let's say it is for a Thanksgiving fundraiser. Even though you gave for that specific fundraiser to continue to get email after email asking for your donation for the cause you just gave. Then add in the calls you get even when you say no calls.

I understand why they do it. Mailings are not very expensive. Having been in the printing industry for a few years I know the calendars they sent or anything they print is not very expensive. All they need is a few people to respond to make it worth while.