How Tax Law Changes May Impact Charitable Giving

Posted on: 3/10/17 by Thomas W. Hosey, CPA

Whether we look at the blueprint for tax reform put forth by Republican House Ways and Means Committee members, the deliberations of the Senate Finance Committee’s bipartisan tax reform working groups or the tax proposals of President Trump, there is a very real possibility that tax rates will be lowered in the near future. While the Internal Revenue Code (IRC) hasn’t seen a major overhaul since 1986, the tax law as we know it today may not be the tax law next year.

What does this mean for America’s charitable organizations? Charities should encourage donors to contribute to take advantage of more impactful deductions that may not be available if rates are lowered in the future.

Below are some of the tax changes President Trump is proposing:

Lowering the number of tax brackets for married joint filers from seven to three

Capping itemized deductions and increasing the standard deduction which could mean fewer people may be itemizing their deductions, and therefore may not be as concerned about generating deductions through charitable contributions

Eliminating the federal estate tax, currently at 40 percent.  Charitable contributions from an estate reduce the taxable value of the estate.  If there is no estate tax, charitable requests may be significantly reduced.

Not all tax code changes negatively impact charities. Last year, Senators John Thune (R-S.D.) and Ron Wyden (D-Ore.) introduced the Charities Helping Americans Regularly Throughout the Year (CHARITY) Act. Among the provisions in the CHARITY Act, the Senate asserted that the promotion of charitable giving should be one of the goals of comprehensive tax reform. The House Tax Reform Blueprint would also provide incentives for charitable giving.

Despite the interplay between tax deductions and charitable giving, the 2014 U.S. Trust Study of High Net Worth Philanthropy found that a desire to make a difference (73.5 percent) and personal satisfaction (73.1 percent) were the main motivators in giving, while tax benefit was cited by just 34.4 percent of respondents. In looking at those statistics, it’s clear that conveying a compelling mission is key to attracting and retaining donors.

There is enormous competition for charitable donations. It’s essential to make your organization’s mission emotionally compelling and relevant to take advantage of current favorable giving arrangements that may not last. For more information, please contact your Marvin and Company, P.C. representative.

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