Will the New Tax Plan Stop Us from Saving the World?

My father lived in the same small city for most of his life, and followed in his own parents’ footsteps, donating generously to civic causes and volunteering on many boards and local commissions. I have tried to honor this tradition in my own life and model it for my children. So it’s been alarming to see all the glaring headlines about how the new tax law might hurt nonprofits. For instance, the LA Times recently claimed that the law will “devastate charitable giving.”

What’s driving this concern? In a nutshell, the new tax law raises the standard deduction so high that most taxpayers will no longer need to itemize their deductible expenses. According to the Tax Policy Center, only 20% of households earning between $100,000 and $200,000 will need to itemize in 2018, down from 50% in the past. If they can’t deduct gifts to charities, these folks will make fewer gifts, says the theory.

I’m not so sure about that. Americans are generous people, particularly to churches and colleges. But I am concerned that this change will hurt grassroots nonprofits dependent on a lot of small donations. Charities likely to suffer are ironically the ones most likely to have noticeable local impact—community based environmental groups, homeless shelters and food pantries. My friends who work in fundraising tell me that the new law also threatens charities with strong annual giving programs that rely on consistent gifting, like symphonies, hospitals and museums.

For dedicated donors like my dad, one way to get around the deductibility challenge would be to “bunch” your contributions in one year. So if you usually give away around $5,000 per year, save up your contribution amounts (or take advantage of a bonus) to do three years of giving in the same year. $15,000 should get you over the standard deduction hurdle, especially if you also have mortgage interest and taxes to deduct. Having a Donor Advised Fund may make this even more feasible and effective.

Here are a few other ways to be charitable even if you’ve lost the ability to itemize (and for anyone else as well!):

  1. If you’re over 70, you can use your required distribution from your IRA to make charitable contributions. Most Abacus clients can even get a check book for their IRA account to make these contributions very easy. If you don’t need the cash, this is a great way to reduce the tax impact of your distribution.
  2. Forget the deduction issue and just give anyway. There is plenty of evidence from crowdfunders like GoFundMe that Americans don’t need a charitable deduction to be generous. Using sites like GoFundMe and YouCaring, you can avoid the middle man and go straight to the person or group with an immediate need. As a former teacher, I also love DonorsChoose, where you can help teachers buy egg incubators, books, easels and all kinds of fun things for their students.
  3. Have fun with your giving. As Barbara Wolf told Abacus blog readers in 2016, sites like CharityBuzz allow you to support deserving organizations while bidding on a chance to snag a coveted dinner reservation, hang with a celebrity, or travel to exotic locales.
  4. Instead of giving money, give your time. Usher at your local concert venue, teach people how to write a resume, or cuddle babies at the newborn ICU. Volunteering can be a great way to connect with organizations and causes you love. You can even turn your vacation into a chance to help save the world.

 

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