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What Happens With Charitable Giving and the New Tax Law

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Now that we’re into 2018, it’s vital if you’re a nonprofit leader, fundraiser, or board member to understand what the Tax Cuts and Jobs Act may do to the philanthropic sector. Keep in mind that this is the first major overhaul of tax regulation in more than a generation, so it’s going to have wide-ranging impact. Lawyers and accountants have been working overtime to understand the implications for the new tax law and the IRS is gearing up to get ready for what is going to be an interesting tax season.

If work or lead a charitable organization, you need to be aware of the reality that the new law is expected to affect your fundraising efforts adversely. In other words, you need to speak to your professional advisors, and you should get your team together to prepare an all-hands on deck approach to ensuring the ongoing sustainability of your organization as donor giving patterns will undoubtedly change.

  • The Council on Foundations released a statement that said the following, “Today’s passage of the Tax Cuts and Jobs Act will result in a decrease of $16-$24 billion in charitable giving every year, significantly decreasing the philanthropic sector’s ability to provide resources and services to people across the United States and abroad.”
  • The most significant reason for the expected drop in charitable giving in 2018 is because the majority of individuals and families will no longer itemize deductions on their tax return. Because the standard deduction was doubled ($12,000 for individuals and to $24,000 for married couples), the average taxpayer will no longer be itemizing, and thus the charitable deduction disappears for many families when filing taxes–meaning the tax incentive for them is gone.
  • Since 2018 is the first year under the new Tax Cuts and Jobs Act law, most families will not have a full understanding of how their tax obligations will be shaping up until more months pass, and they file their taxes. That means the uncertainty will likely begin to depress charitable giving as early as the beginning of the year. This may also include major donors who are financially comfortable but did not do any tax planning preparation in December of 2017 to see the full impact of the tax laws on their households.
  • The estate tax threshold level has increased under the new law from $5.5 million to $11.2 million for individuals and $22.4 million for families. Without getting into too much of the details, the reason why this can adversely impact charitable giving is that families have less of a reason to give their money to charity as opposed to their heirs. Because they can now transfer higher amounts to heirs, those who have assets in the low millions are more likely to bequeath it to their families or heirs as opposed to give to charity because so they can minimize estate taxes.

The reality is that 2018 is going to be a significant year for nonprofits and it’s essential that organizations understand how the new tax law will affect them and also charitable giving. If fundraising dollars decrease, which is expected, then most nonprofits, which already survive with slim margins will have a tougher year. Tough decisions will have to be made if donor dollars dry up such as shutting down programs or eliminating staff. Planning will make all the difference.

What’s important at this time is to get your facts and eventually to message appropriately with your supporters. Your donors want to help you and a lot of the reasons they do come from the heart and not from the head or because of a charitable deduction or estate planning. But, if you’re a nonprofit leader, you would be foolish if you didn’t take into account that your donors have to think about how the new tax law will affect their families and may well pause so they can get a better handle on what’s happening in their finances and taxation.

Understand the trends and how thought leaders are addressing the expected drop in funding, and inevitable decrease in services that could follow. Speak to your peers in the industry and also speak to your supporters. Figure out ways to give donors the space they need to understand their tax issues, but also continue to help your organization. It’s essential as a nonprofit leader to have frank conversations and be open about the choppy waters that may lie ahead.

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