On Dec. 22, the president signed into law the Tax Cuts and Jobs Act, one of the largest changes to U.S. tax policy in decades. What does this mean to fundraising and operations for non-profit organizations? We break down the most sweeping changes here:
The standard deduction is much larger.
The significant increase in the standard deduction means fewer taxpayers will be able to benefit from the charitable contribution deduction. While this provision will provide a higher overall deduction for many taxpayers, experts fear it will also curb charitable giving because only those who itemize their deductions will reap the financial benefit of a charitable contribution deduction. Because of this, the Tax Policy Center expects charitable giving to drop from $12 billion to $20 billion per year. This could result in a projected loss of more than 200,000 nonprofit jobs, according to The Hill.
The estate and gift tax exemptions have doubled.
The doubling of the estate and gift tax exemptions will mean that a significant number of affluent taxpayers will be hit with a very hefty 40 percent tax when leaving an inheritance.
In the past, it was common for high earners to work with their tax planners to mitigate and minimize their tax liability. Deductible charitable contributions are often a means to that end. But given that less is at stake, that means less planning needs to be done and with that likely a lesser amount allocated to charity. As Independent Sector notes, “In 2010, when the estate tax was temporarily repealed, gross charitable bequests in IRS tax filings totaled $7.5 billion – a 37 percent drop from $11.9 billion the prior year.”
The maximum annual deduction for a charitable contribution went up.
Here’s where non-profits can come out ahead. The amount of a deduction an individual can take for giving cash to a charity or operating foundation has been increased from 50 percent to 60 percent of her or his adjusted gross income.
Stay tuned as we keep you posted on trends and best practices pertaining to the non-profit sector in 2018—and beyond!