With the recent passing of the Tax Cuts and Jobs Act of 2017 (“TCJA”), you may be thinking how this new tax law will impact your own financial giving. For this blog and to keep it simple, I will refer to this new tax law, “TCJA”, as the “2017 Tax Law” and will share several key features that impact donor financial giving. Subsequently, in future blogs between now and the end of the spring tax season (April 15th), I will share three more blogs that will cover the following topics:
- The New Tax Law: To Itemize or Not -That is the Question (and the answer is?)
- The New Tax Law, Hometown Nonprofits, and their Donors
- The New Tax Law & the Opportunities for Charitable Qualified Distributions
Stay tuned! With these upcoming blogs on the 2017 Tax Law, I will share insights as to how it will impact you and your financial giving.
First off, let’s take a quick look at a few of the key features that may impact you, as financial donors and, subsequently - through your donations, the nonprofits that are important to you (nonprofits, you may want to listen up!):
Major Features of the 2017 Tax Law
First off, let’s put things in priority. While tax savings may be a consideration for your own financial giving, tax savings is typically not the primary reason for giving. Individual donors typically lead with their heart and give to the causes that are important to them due to the their emotional connection to their causes. Hence, the tax considerations (and potential savings) and addressing the practical challenges as to how, how much, when, to whom, and when to give are typically secondary considerations. With that said, let’s look - with a broad perspective - at 4 key features of the new tax law that may impact charitable giving:The (almost) doubling of the standard deduction The elimination, limitation, or modification of many itemized deductions The increase in limit for giving as percent of income The new tax breaks and tax deduction for pass-through businesses.
Without getting into too much detail on each of these, broadly speaking, they all have an impact on donors and their financial giving.
The (almost) doubling of the standard deduction and itemized deductions changes:
The 2017 Tax Law roughly doubles the standard tax deduction to $12,000 for individuals and $24,000 for couples. With this increase in standard deduction, it is estimated that less taxpayers will itemize: only 5% of individuals instead of 30% according to Urban-Brookings Tax Policy Center. Since donors typically lead with their heart, for donors that are borderline (itemize or take the standard deduction), it can be questioned just how big an impact that these changes have on charitable giving.
The increase in limit for giving as percent of income
Prior to the 2017 Tax Law, taxpayers could not deduct more than 50% of their adjusted gross income in charitable contributions. The new law increases this limit to 60% for those individuals who itemize their deductions (approximately 30% of taxpayers, currently). For most donors, they do not give any anywhere near 50 or 60% of their AGI to charity. There are exceptions though. If your are older, living on a fixed income, with a sizable portfolio, this may come into consideration. As with many financial giving choices, it is important for you to consult your professional advisor(s) for guidance.
The new tax breaks and tax deduction for pass-through businesses.
Under the 2017 Tax Law, there are numerous breaks and tax deductions for business including pass through entities such as sole proprietorships, S Corp, LLCs, and Partnerships. Hence, there should be additional tax savings for business owners. With these additional tax savings and for those inclined to financially support and invest in the local community, it will allow them to help the nonprofits that serve the hometown. Hence, nonprofits (head’s up !), you may want to start identifying privately owned, small business owners as potential donors and/or collaborators that share your passion in meeting your nonprofit’s mission.Stay tuned !.. In the forthcoming 2017 Tax Law blogs, we’ll share some insights and some actionable options for your consideration as you assess your own situation as a financial donor !