Charities Concerned Tax Law Could Lead To Drop In Donations
It’s estimated that nearly a third of charitable giving in the United States happens in December. But, charities across the country are concerned last year’s overhaul of federal tax law could lead to a drop in donations.
One of the biggest changes resulting from the 2017 tax law is the standard deduction for most filers has doubled. For singles, it has been bumped up from $6,000 to $12,000 and from $12,000 to $24,000 for couples.
“So, if you normally itemize deductions and let’s say your itemized deductions total $20,000 and now the standard deduction is $24,000. You are going to go with the higher standard deduction, and it may make it so that your charity donations do not really have an impact on your taxes,” explained CPA Paul Butler, of Butler Tax and Accounting.
As a result of the doubled standard deduction, the Congressional Budget Office estimates 31 million fewer households will itemize taxes in April. But, to get deductions for charitable giving tax payers need to itemize. Charitable organizations worry less itemization will lead to fewer donations.
“We have estimates of anywhere from $13 to $21 billion dollars in a loss for charitable donations across the country,” said Kate Rubalcava, CEO of the Utah Nonprofits Association. “In Utah, specifically, we’re not seeing that type of projected loss.”
Rubalcava said it will be very difficult to predict exactly how the tax law changes will impact charitable giving until taxpayers start gathering all their documents needed to file for their 2019 taxes.
“It won’t be until we have to do our taxes, and then we’ll see what those changes really do to impact our own tax situations,” she explained.
Rubalcava believes most Utahns will keep giving, whether or not they reap a tax benefit.
“Statistics and data within Utah suggest that is the central part of our core. Ninety-two percent of Utahns give to give back and 87 percent give to make a difference in their communities,” she said.
“I tell my clients there’s the tax benefit and then there is a lot of other things to think about when it comes to charitable giving,” said Butler. “So, look at tax benefits as kind of like the icing on the cake.”
One option for tax savings, says Butler, is to contribute every other year so in those alternate years, your contribution is twice the normal amount.
“That way you get the higher itemized deduction one year and the lower standard deduction the other,” Butler elaborated. “This year, we were meeting with clients and kind of running the calculations. Some people were saving $2,000 to $3,000 in taxes based on their regular charity donations by doing the bunching technique. So, it can be a huge thing if you plan it right.”
Another option is a donor-advised fund that allows you to make a large, upfront contribution one year for the tax break. Then, it pays out funds to charities over several years.
For people who have reached the age of 70-and-a-half, there is a third option. You could transfer money from your IRA directly to a charity. It can help you meet your IRA’s required minimum distribution and you do not have to itemize that money transfer for the tax benefit.
“You can deduct your standard deduction of $24,000 or $12,000 and get the charity donation on top of that standard deduction,” explained Butler. “So, it can be a double benefit.”
But, before you send any money to any charity, to get the tax break you need to make sure it is the real thing. Services like Charity Navigator, Guidestar and the Better Business Bureau’s Wise Giving Alliance can help you evaluate and choose a qualifying charity.
You will also need to show the IRS proof of your donation, so be sure to save receipts. If you are donating something non-cash, like clothes, furniture or an old car, document the value of your gift.
“You have to determine what the fair market value is or what could you go and turn around and sell it for,” Butler said.
If the item is more than $500 in value, your deduction will be based off of whatever price the charity sold it.
If donating by check, it has to be postmarked no later than Dec. 31 for the contribution to count during the 2018 tax year. And on a credit card, so long as the charge goes through on or before Dec. 31 it counts, even if you pay the credit card bill in 2019.
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