Dec 20 2017 Tax Reform Impact on Year-End Giving to Charitable Organizations

As 2017 comes to an end, our country is facing sweeping tax reform changes that will affect donations to tax exempt organizations. For some taxpayers, the cost benefit of contributing to charity will not be as attractive as in the past. Here is an overview of the changes to come:

Current Law:

• The standard deduction for non-itemizers is $6,350 for single filers and $12,700 for married/joint filers.
• The deduction for state and local taxes and real estate taxes are unlimited unless in alternative minimum tax (AMT).
• Individual donors who itemize their deductions can deduct cash charitable contributions up to 50% of adjusted gross income.

Proposed Law:

• The standard deduction for non-itemizers will increase from $12,000 to $24,000.
• The deduction for state and local taxes and real estate taxes will be limited to $10,000.
• The charitable deduction limit for those who itemize increases to 60% of adjusted gross income.

While the increase in the standard deduction will benefit taxpayers who do not itemize, it will move more taxpayers out of itemizing by losing deductions such as:

• Real estate tax and state and local tax deductions greater than $10,000.
• Miscellaneous itemized deductions subject to 2% of AGI limitation, i.e. union dues, tax preparation and investment expenses.

Charitable organizations need to be prepared for a possible decrease in support from the public and start planning for ways to replace those funds.

In the near future, not-for-profit organizations should:

1. Increase outreach to donor base for contributions before December 31, 2017.
2. Look to have an aggressive campaign for contributions in early 2018 before the new tax plan has time to settle into taxpayer’s minds. Some contributors may be inclined to donate upon receiving their 2017 income tax refunds.
3. Many taxpayers are setting up donor advised funds. Not-for-profits should look to be included on taxpayer’s lists as an organization to receive annual gifts.

As we move into a new tax year, it seems the search for funding will continue to be a challenge. Charitable organizations should continue to be efficient in operations and complete Form 990 which highlights an organization’s programs by describing who they serve, the amount served and how they serve.

 

If you have any questions regarding these proposed tax changes, or anything not-for-profit related, please feel free to contact Marqus White, Tax Partner in Sax’s Not-for-Profit Practice at [email protected].