A timely question for Giving Tuesday: Will the new tax law affect charitable giving?
The Tax Cuts and Jobs Act, which took effect earlier this year, doubled the standard deduction. The standard deduction rose from $6,350 in 2017 to $12,000 for single individuals and $12,700 to $24,000 for those married filing jointly.
Nonprofit organizations were concerned they’d lose out on major donations this year as a result of the change, said Patrick Rooney, an economist and philanthropy professor. Households would likely donate an estimated $13.1 billion less per year, a decline of 4.6%, according to his research.
Taxpayers do adjust how much they donate in any year based in part on whether their donations are tax-deductible, or whether their tax liabilities will be affected, according to a separate Philanthropy Outlook report produced by the Indiana University Lilly Family School of Philanthropy.
People may double up charitable donations every other year to exceed the standard deduction, experts said. Because the standard deduction has doubled, people may decide to donate to charities every other year so they exceed their deduction.
Some taxpayers may donate the “bunched” amount to a donor-advised fund, make a charitable donation and claim a standard deduction in one year, while allowing the charitable fund to donate its assets periodically, said Dave Alison, a financial adviser at Alison Wealth in Palo Alto, Calif.
This strategy doesn’t make sense for everyone, Ros said. Clients in the 12% federal bracket only save 12 cents for each dollar donated to charity, for example. It’s also hard for some individuals — especially those on a fixed budget — to double up donations for every other year.
See: It’s now easier than ever to give to charity on Giving Tuesday
The wealthy are least likely to change their habits, according to a U.S. Trust study on high net worth philanthropy. A majority of wealthy donors said they expect to maintain their giving levels (84%) and another 4% said they intend to increase that amount in 2018, regardless the new tax law.
Some 50% said tax breaks influenced their charitable giving, while 17% said they were influenced by tax incentives. “It is a belief in the mission of the organization that drives giving, with the tax benefit being secondary,” said Juan Ros, a financial adviser at Lamia Financial in Thousand Oaks, Calif.
Many people tend to give up until the last day of the year, so the full impact won’t be known until then, said Rachel Hutchisson, vice president of corporate citizenship and philanthropy at Blackbaud, a software company working specifically in the nonprofit industry.
Thus far, however, there’s little reason for charitable organizations to be concerned, she said, as the strong U.S. economy should help boost donations this year. As of Nov. 26, charitable donations are up 4% throughout the year and 10% online, according to Blackbaud data.
Get a daily roundup of the top reads in personal finance delivered to your inbox. Subscribe to MarketWatch’s free Personal Finance Daily newsletter. Sign up here.
Alessandra Malito is a personal finance reporter based in New York. You can follow her on Twitter @malito_ali.
We Want to
Hear from You
Join the conversation