As we approach the end of 2018, many non-profits are holding their breath to see how the new tax law could affect their year-end charitable donations. As you know, non-profits need the support of individual, organizational and corporate donors to continue to fulfill their missions. Whether private donations make up 10% or 90% of an agency’s annual budget, these supporters are a critical component that truly makes a difference in what services are provided to the community. Right now, all non-profits are concerned, very concerned, about the impact of how the new tax law could affect the charitable donations. Why? Because the new standard deduction for joint filers and individuals nearly doubled. The new deduction is $12,000 for individuals and $24,000 for married couples filing jointly. While, at the same time, the maximum for cash donations (to charities) has been reduced. So that means the number of households choosing to itemize their deductions is expected to drop significantly because the incentive to do so has been removed. Most Americans might feel, “it’s just plain easier to take the standard deduction.”
I’ve been using a simple analogy to explain the situation. When you play the game Monopoly and land on the “Pay Tax” square, you have the option of paying $200 or 10% of your worth. Most players don’t bother calculating their properties and just pay the flat rate. Why? It’s easier. The same reasoning applies here. With the new tax law, some projections show the number of taxpayers who itemize their deductions dropping from 37 million to about 16 million in 2018. This is because for many Americans itemizing their deductions will no longer get them a bigger refund, so they will choose the simpler standard methodology.
Americans have traditionally been generous givers. So the question begs, “Will donations to non-profits take a massive loss because the tax incentive to give has (basically) been removed?” The answer is, “We don’t know yet, and we might not know until 2020 after filers complete their 2018 tax returns in April 2019, and determine what works best for them.” Until the data starts coming in, non-profits across America can only hope to exhale a sigh of relief.
David James
Director of Development
Safe Harbor of Chester County, PA