The Tax Cuts and Jobs Act Reduces Taxpayer Benefits from Charitable Contributions

The Tax Cuts and Jobs Act (TCJA) more than doubles the standard deduction by raising it from $6,350 to $12,000 for single taxpayers and from $12,700 to $24,000 for married taxpayers filing jointly.

Analysts say this increase in the standard deduction will substantially reduce the number of taxpayers that can benefit from the charitable contribution deduction from about 30% of taxpayers in 2017 to 6% in 2018. Thus reducing overall charitable giving by $12 billion to $20 billion per year further resulting in a projected loss of about 220,000 to 264,000 nonprofit jobs.

While the increase in the standard deduction will provide a higher overall deduction for many taxpayers, it may also depress charitable giving because only those who itemize their deductions, now far fewer taxpayers under the TCJA, will get the benefit of a charitable contribution deduction.

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Post TCJA – How Will People Give?

The provisions under the TCJA may result in more “bunched giving” where, instead of making annual gifts to charities, donors choose to accumulate their giving dollars over multiple years to make several years’ worth of gifts in one year. More positive for nonprofit organizations is the ability for donors to create a donor-advised fund where a large sum of money can be deposited in the fund in one year and distributions to charities are made in subsequent years.  Both strategies may be used by donors to raise their itemized deductions in a particular year to a level higher than the standard deduction.

While all nonprofit organizations would like to believe their donors are solely motivated by an altruistic desire to support each charitable mission, management and staff should not discount that for some donors, the charitable contribution deduction is part of an array of reasons to make a charitable gift and that the unavailability of the deduction itself may influence if, and how much, they will give.

The deductibility of charitable donations is only one of the provisions of the TCJA that affects nonprofit organizations. Contact us for more information on this and other changes that will impact your organization.