Charitable Giving May Largely Remain Intact Despite New Law

October 20, 2018 —Massachusetts nonprofits that are still wondering how donations to them will be impacted by the new federal tax law—widely expected to reduce the number of households that will itemize tax deductions for 2018—may take heart from new research which suggests the impact won't be severe.

According to Fidelity Charitable, a Boston-based nonprofit that pioneered donor-advised fund programs, announced that, based on recently completed research it conducted, 82% of donors who itemized deductions on their 2017 taxes plan to maintain or increase their giving in 2018.

However, the organization advised, "the research also demonstrates these taxpayers may not fully understand how the Tax Cuts and Jobs Act will impact them."

Experts have predicted the increased standard deduction will lead to a 60% decrease in the number of households itemizing tax deductions, because what individuals once itemized, such as property taxes and charitable contributions, may not add up to exceed the higher standard deduction thresholds. This, many people fear, could diminish incentive to make charitable donations, hurting nonprofits in Massachusetts and elsewhere.

Fifty-eight percent of individual U.S. taxpayers are still planning to itemize in 2018, though itemizing may not be right for their situation, according to Fidelity Charitable, suggesting "that many taxpayers have not worked through how tax reform might affect them personally."

While the Tax Cuts and Jobs Act of 2017, which took effect on Jan. 1, 2018, left the charitable deduction intact, one of the most significant reforms enacted was to increase the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly.

For many taxpayers, this means that items they once itemized, such as property taxes, mortgage interest, and charitable contributions, may not add up to exceed the higher standard deduction thresholds.

Fidelity Charitable noted that nonprofits may want to suggest that donors consider group multiple years of charitable deductions into a single year to help boost the value of their deductible items above the $24,000 threshold for married couples filing jointly. That way those donors can maintain their charitable support while getting a tax deduction.

"Given the confusion around the new standard deduction, it may take until [taxpayers] file their 2018 taxes to completely absorb the impact of the changes and potentially adjust charitable plans," Fidelity noted. "Therefore tax reform’s influence on giving at large will likely not be fully known until 2019."