Article written by:
Nicole DeLoye, CPA
When the Tax Cuts and Jobs Act (TCJA) was enacted toward the end of 2017, there were many unknowns. Not only for individuals and businesses but for nonprofits as well. One concern was that of charitable donations given by individuals. The TJCA raised the standard deduction to $12,000 for singles and $24,000 for married filing jointly. As a result, it was estimated that almost 40 million people who previously itemized would now take the standard deduction instead. This caused concern for many within the nonprofit sector. Donations received by nonprofits are an itemized deduction for individuals, and many people worried whether or not donations in total would drop if fewer individuals were itemizing their deductions. While we don’t have a complete analysis yet to give us the answer to that question, there are some interesting studies out that are shedding light on the TCJA’s impact on donations.
While many experts say that we will not know the true impact of the TCJA on nonprofit donations until at least a few years down the road, the numbers so far are showing somewhat mixed results. A study conducted by the Fundraising Effectiveness Project found that charitable giving increased by 1.6 percent in terms of dollars in 2018, although the overall number of donors was down by 4.5 percent. The study also shows a common trend of organizations receiving larger donations from wealthier donors, while the total number of donors, as well as donations of smaller dollar amounts, are both declining.
Another consideration is the impact of donor-advised funds. According to Schwab Charitable, 2018 saw a big jump in giving to donor-advised funds – up 35 percent. A possible reason for this jump is the use of a tax strategy where an individual will “bunch” his or her charitable donations in order to receive a tax benefit for charitable giving. “Bunching” is when an individual gives a larger sum of charitable contributions in one year in order to make it more advantageous to itemize in that tax year. The individual would then donate nothing in another year and instead claim the standard deduction for that tax year. Donor-advised funds are often a preferred vehicle for employing this strategy, as they allow the donor to fund the donation (and claim the deduction) in one year and then deploy those funds to directed charities over a number of years.
So what does all this mean for the future of charitable giving? It seems only time will tell. However, nonprofits are still hopeful that overall levels of giving will not suffer as a result of the recent changes to the tax code. They are hopeful that individuals will continue to give to their preferred causes, and continue to find smarter ways to give in order to preserve the tax benefits of doing so.
If you would like to know more about charitable giving tax strategies, or the use of donor-advised funds, please contact your GBQ advisor.