Is Tax Reform Hurting Charitable Donations?

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It appears that changes tied to last year’s federal tax reform might be hurting charitable giving.

Donations to charity decreased overall in the first three months of 2018 compared with the same quarter of 2017, according to the Association of Fundraising Professionals (AFP) — which cites tax reform as a possible cause.

When Republicans unveiled their outline for tax reform last fall, they highlighted its retention of big-ticket tax breaks like the one for donations to charity.

And not only did they retain the deduction, but they increased the threshold for it. Under the federal tax code overhaul that President Donald Trump signed into law in December, charitable donations totaling up to 60 percent of your taxable income — rather than 50 percent — may now be tax-deductible.

So, why might tax reform be responsible for the dip in giving?

Charitable changes

What Republicans failed to mention when touting the retained and increased federal tax deduction for charitable donations is that such donations fall under the category of itemized deductions.

That basically means that taxpayers who are not eligible to — or choose not to — itemize deductions on their income taxes cannot write off charitable donations.

Far fewer taxpayers are expected to itemize in 2018 or coming years. This is due to the newly increased standard deduction under the new the law — which is a double-edged sword, as we detail in “4 Big Tax Deductions You Almost Surely Won’t Claim for 2018.”

In essence, for many taxpayers, it now makes more financial sense to take the standard deduction than it does to itemize deductions. The IRS only allows you to do one or the other.

All of this may be negatively impacting charitable donations.

The Association of Fundraising Professionals’ Fundraising Effectiveness Project report for the first quarter of 2018 shows that charitable giving fell in multiple ways, including:

  • Total number of donors: Down 6.3 percent compared with the first quarter of 2017
  • Total revenue: Down 2.4 percent
  • Overall donor retention rate (percentage of donors who continue to give to the same organization from one year to the next): Down 4.6 percent
  • Number of new donors: Down 12 percent
  • Number of newly retained donors (new donors last year who have made a second gift this year): Down 18 percent

These declines followed “an extraordinary level of giving that occurred in the last quarter of 2017” — in which tax reform “may have been a key factor” — according to the AFP.

Two caveats to note about the report: It’s typical for charitable giving to dip in the first quarter and rise in the last quarter of a year, and a first-quarter dip does not necessarily mean donations will be down for a year as a whole.

Yet despite these caveats, charities are worried about 2018 as a whole.

Concerns cited in the AFP report included those of Jon Biedermann, vice president of fundraising software DonorPerfect:

“The reason we’re so concerned with these first quarter numbers for 2018 is because of what we saw in 2017. For the first three quarters of 2017, giving was way behind the pace of 2016. … So far, giving is off to an even worse start in 2018, so we’re concerned about what charities may experience in their fundraising throughout the year.”

What it means for you

Of course, this is not to say you should stop supporting your favorite charitable causes through donations. It just means you may realize upon filing your next tax return that your charitable donations are technically not a tax write-off — which should be icing on the cake rather than the main reason to give.

Furthermore, it’s possible to support a charity while spending little to no money. Just take a look at “41 Free or Cheap Ways to Give to Charity.”

What’s your take on this news? Share your thoughts below or on Facebook.

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