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Is the new tax law chilling charitable donations?

On Behalf of | Dec 16, 2018 | Uncategorized

The hard, cold figures won’t be available until tax deadline day in April, but changes made by Republicans to the federal tax law will likely result in fewer donations to charities.

Donations from individuals make up about 75 percent of all the donations received by U.S. charities. Until this year, about 30 percent of tax filers itemized their deductions to include charitable donations.

That all changed in 2017.

A new financial threshold

Each year, taxpayers stare down at their 1040 forms and decide whether to take a standard deduction or itemize their deductions. Their decision is quite often based on which method will save them the most money.

Changes made by the Republicans in the House, Senate and in the White House increased the standard deduction for individuals from $6,000 to $12,000 and for couples from $12,000 to $24,000.

That change came with drops in several deduction limits. For example, the cap on claims for local and state tax deductions dropped from $15,000 to $10,000. The deduction on interest paid on mortgages dropped from $1 million to $750,000 (mortgages that existed before Dec. 14, 2017 are grandfathered in at the higher deduction).

A $13 billion to $24 billion hit

The rise in the standard deduction and the drop in the deduction limits means it’s harder for taxpayers to reach the threshold where itemizing deductions will be worthwhile. With fewer people itemizing deductions, fewer people will be giving relatively small amounts to charity – one group predicts between 5 percent and 12 percent fewer taxpayers will now itemize, between $13 billion and $24 billion each year.

People with massive wealth may be willing to donate more, but these people tend to donate to larger organizations such as hospitals and universities. Smaller charitable organizations will likely bear the brunt of the tax changes.

The IRS says donations are tax-deductible if they are made to entities such as these:

Churches and religious organizations

  • Nonprofit schools and hospitals
  • Veterans groups
  • Public parks and recreation facilities
  • Nonprofit organizations including the Red Cross, the Salvation Army, Goodwill, the United Way, Boy Scouts and Girl Scouts, and thousands of other organizations.

Donations are not tax-deductible if made to organizations such as political groups or candidates, professional groups, raffle or lottery tickets, tuition, for-profit schools and hospitals, or dues paid to lodges or country clubs.


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