The Tax Act was passed in December 2017 and had a large impact on the nonprofit sector. The most notable impact was a change to the standard deduction, which impacted both individuals donating to nonprofits and nonprofits receiving funds. Read on to discover how the New Tax Act impacts your nonprofit.
In December of 2017, Congress created a tax reform in the Tax Cuts and Job Reform Act. Subsequently, there are a lot of important changes that are going unnoticed that people should be aware of.
Some are not largely happy with this new tax act for nonprofit organizations. It presumably will harm to the nonprofit sector as no one listened to the nonprofit lobby much.
The biggest change structurally was to increase the standard deduction. It sounds highly technical, but it has an enormous impact on the bottom line for charities. Charities are expecting to see about $12 billion less in charitable giving in 2018 as a result of the increase in the standard deduction.
It’s going to mean the most for people in this $70,000 to about $200,000 income range, who were able to itemize instead of taking the standard deduction. The standard deduction for a couple went up from $12,600 to $24,000. This means most couples will not be itemizing anymore because they get no tax benefit from the charitable contribution deduction.
Let’s say an individual is at a 25% rate and makes that $1,000 contribution. The $1,000 contribution along with a mortgage interest deduction (state and local tax does not go above $24,000) won’t get any benefit. The cost of contributing $1,000 will now be, about $1,250 instead of $750 for that individual.
What can you do and what should you be doing? Consider encouraging your donors to bunch contributions. Your donors that were consistently giving (and who are in this $170,000- $200,000 range) might think about making a larger contribution every other year so they get themselves into this itemizing place where the donation becomes useful to them. This is one of the strategies that folks are using.
An additional one is that you’re probably going to need to be seeking out folks to donate from the donor-advised fund. $8 billion moved into the donor-advised fund sector. Donor-advised funds are important. You need to be thinking about them. A lot of money is moved there. There’s money there. You need to be talking to those folks who have that money.
Hopefully, this helped clear up some of your questions about the new tax act…