Will the New Tax Laws Impact Charitable Giving?

Sponsored by: Central Carolina Community Foundation

The tax overhaul passed by Congress and signed by the President late last year made modifications to the tax deductibility of charitable contributions.

Philanthropists and non-profit organizations alike locally and throughout South Carolina have been seeking guidance from Central Carolina Community Foundation on the new tax code’s overall impact on philanthropy.

Changes

Here are the changes that affect the deductibility of charitable contributions.

  • Nearly Doubling the Standard Deduction

This change alone in the tax code potentially reduces the number of filers itemizing their expenses from 46 million to roughly 16 million. Many will not need to deduct charitable contributions and other expenses to reduce taxable income.

  • Eliminating the Deductibility of Charitable Contributions to Universities for the Right to Purchase Tickets to Athletic Events

In South Carolina, this could particularly affect supporters of USC and Clemson. Prior to the tax law changes, donors could deduct 80% of a donation made in exchange for the right to purchase priority seating for selected events. The tickets themselves were never tax deductible.

  • Repealing the Pease Amendment

This limited the amount of total itemized deductions for families with adjusted gross incomes of $300,000 or more. Removing it could offer write-offs for larger contributions from wealthy donors.

  • Increasing the Percentage of Income Donors Can Deduct for Charitable Contributions

Donors were previously limited to deducting contributions of up to half their income to charity. The new tax law bumps that up to 60 percent. This might encourage wealthy donors to increase their giving.

The net effect of these four changes will dramatically affect the deductibility of charitable contributions. As a result, some observers claim, charities nationwide might prepare for a potential $13 billion decline in giving.

Locally, we have a more optimistic outlook.

A national study of high net worth philanthropists found that tax incentives rank 11th on their list of reasons for making donations, far behind “making a difference.” Put simply, most people give to charity to make the world better, not to save money on their taxes.

Options

There are many options available to philanthropists that continue to make giving easy and impactful.

  • Continue to Invest in Non-profits That Make an Impact

Charities that tell their stories and exhibit real outcomes from their work will continue to attract the most contributions from donors that want to make a difference.

  • People Give to People

Philanthropy is a relationship business. Strong connections between donors and nonprofits is the best defenses against reduced tax incentives for contributions.

  • Donating Stock is Easy

The tax on capital gains can be as high as 20% so donations of appreciated stock is a tax-advantaged avenue to philanthropy. Appreciated stock can be transferred by a broker to the charity’s brokerage account as a gift. The net cost of this gift is less than a gift of outright case because if the stock was sold and then gifted to the charity, the donor would be required to pay the capital gains tax.

  • Consider Establishing a Donor Advised Fund and Bundling Donations

Donors can package multiple years of their charitable gifts into one year, thereby helping them eclipse the standard deduction and earn some deductibility. Donors can make a large donation to establish a Donor Advised Fund in one year and then distribute donations to charities over several years. This increases the value of itemizing in the year they establish the fund.

  • IRA Distributions May Be An Option for Donors Age 70½ or Older

Supporters over the age of 70½ must begin taking distributions from their IRAs and pay ordinary income taxes on them. (This is not true of Roth IRAs, where taxes are assessed up front.) By donating directly from their IRAs, they can reduce their income, potentially lower their income tax and still meet their minimum distribution requirement.

Overall, our community is made stronger by the dedicated people who lead and staff our nonprofits, and the overwhelming generosity of the donors and volunteers that support them. Irrespective of the tax implications, everyone can be a philanthropist with their gifts of treasure large and small.

For help determining how you best can support the Midlands community with your philanthropy, contact Central Carolina Community Foundation at (803) 254-5601 or visit us online at yourfoundation.org.

Central Carolina Community Foundation does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.