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Tips for Giving After the Tax Bill

U.S. public policy issues
December 22, 2017

With the recently approved tax reform bill significantly affecting charitable giving, the Association of Fundraising Professionals (AFP) offers advice and perspective to both charities and donors as they look at giving in 2017 and beyond.

With the doubling of the standard deduction under the tax bill, the number of Americans who itemize their taxes will drop by 30 million—accounting for $100 billion in itemized charitable gifts, according to the Congressional Joint Committee on Taxation. Since more Americans will do better on their taxes by taking the increased standard deduction—as opposed to itemizing their deductions—the tax incentive for those taxpayers to make charitable gifts will disappear.

Research shows that this change will result in a decline of giving between $13 - $20 billion per year, according to separate research from the Independent Sector and the Lilly Family School of Philanthropy, and the Tax Policy Center.

“People give for many reasons beyond tax incentives, but we do know that tax incentives typically increase the amounts of gifts and encourage people to give more often,” said Mike Geiger. “That’s why we see Congress and the IRS make tax policy changes following natural disasters, like Hurricanes Harvey, Irma, and Maria, to encourage giving. We are very concerned about the impact of the tax bill on giving, especially for the middle class and donors who currently itemize, but won’t have the incentive to in the future. We believe 2018 will see a drop in giving, so we offer the following thoughts about fundraising into the future.”

AFP reminds charities and fundraisers that it’s important to keep an optimistic tone and perspective moving forward. While many charities may focus on the difficult challenges ahead, it’s important that they balance that sense with optimism about how they’re still making a difference and changing the world. Donors need to know about the obstacles charities face, and organizations should be realistic about their situations and the needs of communities. But donors don’t want to be overwhelmed all the time with negative images. People will always want to help, and charities need to inspire them to action more than ever.

With the standard deduction doubled for 2018 and the charitable deduction gone for most taxpayers, charities and fundraisers are likely to see donors:

  • Making larger gifts in 2017 to take advantage of the charitable deduction, which may lead to a significant uptick in giving at the end of the year;
  • Giving appreciated investments, such as shares of stock. Donors can take a deduction for the full market value (with some limits), while not having to pay capital-gains tax on the appreciations; and
  • Exploring how to contribute through their Individual Retirement Accounts (IRAs). Donors age 70½ or older can contribute up to $100,000 of IRA assets directly to one or more charities and have the gift count toward their annual required distributions from the IRA and removed from their taxable income.

With the tax bill lowering corporate tax rates, charities may find more funding and resources from corporations if they can develop effective partnerships that make sense for both organizations. In addition, wealthier donors will still be able to take advantage of the charitable deduction and be willing to make larger, major gifts.

“Again, most donors give because they want to make a difference, and tax incentives are not WHY they give,” said Geiger. “But taxes and incentives may dictate how they give, and these are options some donors may take to be charitable and be effective with their taxes at the same time.”

Another option is bunching, whereby donors “bunch” future donations together and only give every other year, or every few years, so that their deductions are so high they can take advantage of the charitable deduction and itemize their gifts. AFP is concerned about this giving approach given the yearly needs of most charities.

“Most charities—the people they serve, the missions they support and the ideas they advance—simply can't wait a couple of years to receive a bigger donation,” said Geiger. “I understand the appeal of bunching from a tax perspective, but having to wait for donations for so long will play havoc with a charity’s planning and ability to meet unexpected and critical needs. I hope most donors will understand that charities require stable support every year and continue to give annually, and that will be a message that charities need to give to their donors.”

Ultimately, the best strategies are about how effectively charities engage donors and tell their stories of impacts and outcome. No matter the tax code or the economic environment, charities that can connect with donors, show the impact of their programs and inspire donors to get involved will always be successful. Charities should be focusing on how donors can make a difference.