The new tax law, the Tax Cuts and Jobs Act, has unintended consequences for nonprofits, their donors and their clients. Analysts expect the law’s provisions will reduce charitable giving by about 6-9% per year (Neo Law Group, 2018).
Increasing the standard deduction will depress charitable giving because only those who itemize their deductions get the benefit of a charitable contribution deduction (Neo Law Group, 2018).
This decline is expected to be concentrated among gifts from the middle class. The richest Americans will mostly keep their ability to take the tax break. However, the wealthy are more likely to give to larger charities (like museums, hospitals and universities), while smaller donors tend to give to social service agencies (Washington Post, 2017).
The new law also more than doubles the size of estates that will be subject to the federal estate tax so the number or people who pay estate taxes will drop significantly. The estate tax is an incentive for wealthy to give to charity rather than pay the tax. Eliminating that incentive for many more estates will cause a substantial decline in large gifts (The Hill, 2018).
The tax code may also change the size and timing of gifts. It may result in more “bunched giving”- 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. This strategy could be employed to cause their itemized deductions (including the charitable contribution deduction) to be higher than the standard deduction (New York Times, 2018).
The new law sets a $10,000 limit on how much can be deducted for state and local income, sales and/or property taxes for any one year. This could be particularly difficult for retirees. In the past, these items were fully deductible (Kiplinger’s, 2018). They will have less money to give to charity, and some may have trouble paying their bills.
Here at HomeSharing, we are concerned. Individual donors make up about a third of our budget and most of those donors are from the middle class. We don’t know yet how our donations will be impacted, and because people give for altru-istic reasons as well as the tax write off, many will find a way to do so. We are looking to foundations and corporations for additional funding, as much of their giving revenue comes from investments and profits and they will benefit from the new tax code. At the same time, we are expecting an increase in the number of people who are looking to become home Providers at HomeSharing. One way to make up for the lessened income resulting from the limit on state, local and property taxes is to have additional income from renting out a room in the home.
What You Can Do:
Consider increasing your donation this year, especially if you are itemizing and are able to do so.
Consider “bunching” your donations so you can itemize.
Tell your senators and representatives to make the charitable deduction available to those who do not itemize.
Introduce HomeSharing to your place of work and your colleagues. Your business may have an increased capacity to give this year.
If you know people who are struggling due to the limits on their state/local and property tax deductions, tell them about HomeSharing- some extra rental income may make the difference in their ability to stay in their homes.