Several changes to the federal tax code were signed into law in December 2017. These changes, which affect both corporate and individual tax rates, went into effect at the start of the 2018 tax year. One specific change, an increase to the standard deduction, could have a major impact on non-profit organizations.
By raising the standard deduction, fewer Americans will need to itemize their tax returns. Those that do not itemize their return will no longer be able to write-off charitable donations. This has many non-profits concerned about the number of donations they will receive in 2018.
The new tax law nearly doubles the standard deduction for both individuals and couples filing jointly. This was meant to simplify tax returns by eliminating the need for tax deductions.
Currently, about one-third of American taxpayers itemize their return. Under the new tax law, only five percent are expected to itemize. This means that many people that regularly claim charitable donations on their return will no longer be able to do so. Without this incentive, many people will stop donating altogether, and the donations people do give will likely be lower. It is estimated that charitable giving might decline by as much as $13 billion a year. This level of change will have a significant impact on non-profit organizations.
It’s impossible to know the exact effect that changes to the federal tax code will have on charitable giving in 2018. We will have a much clearer idea once 2018 tax returns are filed, and organizations provide reports on the number of donations received throughout 2018.
Unfortunately, if charitable giving is reduced because of recent changes to the tax code, many organizations will not be able to provide the services the public has come to expect. Many smaller organizations might even be forced to halt their operations.
Some states are already trying to encourage people to continue to give. For example, Minnesota taxpayers may still subtract a portion of their charitable donations on their state income tax return.
Burdette Smith and Bish can help you make sense of changes to the federal tax code. Please contact us for a consultation.