CHARITIES FEARFUL OF NEW TAX LAW
Our new tax law has many changes in it. It is, indeed, the largest piece of tax legislation since 1986 (and I know that some of you reading this weren’t even alive in 1986!). In any event, one of the provisions of this new tax law has many charities a bit concerned. Their concern is not without merit. Let’s explore what this is all about. A large number of taxpayers file a Schedule A (part of the Form 1040) and report their itemized deductions there. Itemized deductions include medical, taxes, interest, charitable and more. Basically, you get a choice. You can add up all of those items, total them up and see if it is worth it to report all of that on the tax return. Or…..you can simply take a standard amount that the government gives you. You can use whichever number is better for you. So, let’s look at an example.
EXAMPLE 1: For 2017, Uncle Sam allows you, if married, to take a “standard deduction” of $12,000 in lieu of adding up all those other items (medical, taxes, etc.). But, let’s say we know that adding up all those other items will total MORE than the $12,000. If that is the case, you can see that it would not be smart to use the “standard deduction” that IRS allows. Instead we’d be way better off to use the actual figures for those items. Let’s pretend that we add up $3,000 medical, $5,000 taxes and $12,000 charitable….for a total of $20,000. It’s easy to see that we will forego the “standard deduction” of $12,000 and take the full $20,000 instead. Easy stuff!!
NEW TAX LAW: For 2018 the new tax law will double that “standard deduction” for a married couple……from $12,000 to $24,000. So, how might that change things and cause charitable organizations to have concern? Another example will make it clear.
EXAMPLE 2: For 2018……Given the same figures as in Example 1 above, we will now want to forget about adding up all of those separate items. We’ll just take the $24,000 “standard deduction” instead. You can see why, right? The total for the individual items was only $20,000 and we can get a full $24,000 by doing nothing! What a great deal, huh? And, to be fair, it really is a great deal. So, where’s the concern? Keep reading…..
THE charitable concern
In Example 1 you gave $12,000 to your church (for example) and got a nice deduction for it. In Example 2 you are getting $24,000 without any need to spend a dollar! So, in 2018, if you stop ALL your giving you will STILL get a nice deduction of $24,000 AND you will have an extra $12,000 in your pocket. That’s $1,000 a month extra money. If you still give the $12,000 to your church you will get NO tax benefit for it in Example 2. Do you see this? I hope I have made this point very clear.
So, many charitable organizations are wondering if 2018 contributions will decrease substantially from donors who have tax situations as described above. I guess another way to put it in perspective is to ask the following questions…..why do donors make charitable contributions? Is it only for the tax deduction? What if there is no tax benefit…..will they still give? Are they really “giving from their heart”? Or will the potential loss of a tax deduction decrease their giving?
The truth is that we won’t know until later in the year. AND….I am very interested in tracking this by type of organization. By that I mean religious organizations, public non-profits, non-religious humanitarian organizations, etc. If it turns out that “giving” does decrease in 2018 I would be very interested in seeing if it is across the board or limited to certain arenas. Of course, I am hoping that this fear, even though I see their point, will not happen and America will continue to be at, or near the top, of countries that “give”. We have a long history of being a “giving” country….globally. That is a tradition we would all like to see continue.
Okay…..I hope this has been informative and maybe even caused some of you to really contemplate how you give, your motivations and plans for 2018.