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How Will Tax Reform Impact Charitable Giving?


The Tax Cuts and Jobs Act reduced the tax rates of most tax payers, so the average U.S. household will have more disposable income to spend and give in 2018. That’s good news for the nonprofit industry.

It increased the amount of charitable giving itemizers can deduct. Up to 60% of adjusted gross income can be given (up from 50%), so wealthier donors who itemize can now write off even larger contributions. Tax reform also dramatically increased the standard deduction amount for all categories of filers. For example, a married couple filing jointly will now enjoy a standard deduction of $24,000 per year ― up from $13,000.

In the past, about one-quarter of households itemized deductions, but in the future, the government expects less than 10% will itemize.

This is the source of concern for nonprofits: with fewer people itemizing charitable deductions, will giving decline? It is unlikely to make much difference. The majority of donors were not ever itemizers. Most are not wealthy. And as it will soon be seen, tax deductions have little or nothing to do with why they give.

Corporations enjoy a tremendous reduction in tax liability thanks to tax reform. At a 21% tax rate, companies have nearly halved their tax rate from a previous rate of 35%. Going forward, this will allow corporations to become more profitable. As the rising stock market has demonstrated, corporate earnings have been growing in recent years – even before the tax cuts.

Tax cuts, combined with a strong economy, will result in increasing levels of individual, corporate and foundation giving, according to a report by Sage Intaact.

Ultimately, the economy is a better bellwether than the tax code when it comes to giving trends. A strong economy sustains greater levels of giving. Although fewer individuals will itemize charitable contributions on their taxes, this represent a small fraction of donors, and deductions are not their primary motivator.

Major donors don’t give for the tax break. They give because they believe in the mission and can see the impact of their donations. Nonprofits need to help donors see the results of their gifts and demonstrate solid financial stewardship through transparency and accountability. RELATEDMake Your Financial Statements Stand Out in Nonprofit Fundraising 

So how can how finance leaders can help sustain nonprofit revenue?

Click here to learn how nonprofit financial management solutions, such as Sage Intaact, can help nonprofits measure and report on key metrics in real-time, thereby increasing visibility into stewardship and outcomes.


About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

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