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What we know: The new tax law’s influence on charitable giving is a topic of lively discussion, and multiple projections of negative impact have been made. Not everyone fears the effect of the change, with some believing it will put more cash into the economy and actually boost charitable giving. The nonprofit sector will not know the full implications until after year-end, but it is in the best interests of organizations to proactively consider the tax changes in their operations. The ASU Lodestar Center’s two Professionals in Residence, Pat Lewis and Anne Byrne, weigh in with their differing perspectives and advice for nonprofit organizations. For more information on the likely impact of the new tax law, click here.
Yes, we are now undergoing significant changes to tax law changes that impact individuals in new ways. For those of us engaged in the world of philanthropy, there is a lot of head scratching going on. Will people have more funds to give because of the significant increase in the standard deduction? Will those with moderate giving patterns have less to give because of the $10,000 cap on state and local income and property taxes? Will those with significant estates and high annual incomes give more because of their greater access to deductibility of their charitable gifts?
At the heart of this debate lies a central question: will people continue to give if they can’t deduct their charitable gifts?
In reality, charitable giving remains tax deductible. However, the itemizing picture has changed a bit – some itemization categories have gone away or been capped differently -- and for many, it will not seem worth their time to track expenses to itemize. This is because so much of what had previously been itemizable is now included in the more generous standard deduction.
Currently, only about 30 percent of taxpayers itemize their charitable giving. The average charitable deduction has hovered around $4,400 in the past years, according to IRS data. Within that $4,400, we know the average gift has ranged from small to large with the higher income taxpayers (adjusted gross income of $100,000 or more) providing about 50 percent of the total dollars. Those who provide the larger gifts are expected to continue to itemize and, thus, deduct their charitable giving. Those who provide the bulk of the gifts (not dollars) may decide not to itemize.
Will this lack of itemization negatively impact overall giving? There is no definitive research that I can find that says “yes.” There are projections, estimates and thoughtful guesses. These go both ways: some say charitable giving will decrease by $12-$20 billion, others say there will be no negative impact.
I am with the latter. When you make a charitable gift do you say to yourself, “I am making this gift because I get a tax deduction?” I doubt it. There is much to support the supposition that people give of their treasure where they believe it will make a difference in a life or in a community and where their personal values match those of the beneficiary organization.
Some new high-tech fundraising programs don’t even qualify for a deduction. Example: the ‘gofundme’ efforts to provide relief to those suffering a wide variety of emergencies. These are gifts to specific individuals, thus they do not qualify for deductibility. Donors to these efforts are motivated by the need of others and out of pure generosity. There are many additional arguments that support the greater ability to give because more monies will be available due to changes in estate giving laws as well as a projected continuing strong economy.
The question is whether individuals will give to their current or greater levels. I suggest they will IF- and this is a big if- nonprofit organizations effectively tell their stories and quantify the impact of their efforts in making a difference in society.
So no, Chicken Little, I don’t think the sky is falling. There are some clouds on the horizon and you should be using this change as an opportunity to re-evaluate how you communicate your organization’s impact. Ultimately, people care more about others and the quality of life in their communities than they do about tax deductions.
Patricia F. Lewis, ACFRE, recently retired after 16 years of service with the ASU Lodestar Center for Philanthropy and Nonprofit Innovation.