Thanksgiving is the time many of us give thanks for our blessings and send some of those blessings back into the world. Though we Americans give back in many ways, one of the most popular is through charitable donations.
In fact, Americans are some of the biggest philanthropists worldwide. Our donations to charity surged to an all-time high of $400 billion in 2017, according to Giving USA Foundation.
But will that number drop with the Tax Cuts and Jobs Act of 2017, which overhauled our tax code?
The Standard Deduction and Charity
The Tax Cuts and Jobs Act increased the standard deduction that Americans can take on their tax returns. Previously, if you were single, you would take a $6,500 deduction; now that deduction is $12,000. For heads of household, the deduction increased from $9,550 to $18,000, and for joint filers, it jumped from $13,000 to $24,000.
The new act left intact the charitable contribution deduction; however, the increase in the standard deduction means that a lot fewer people are going to itemize their deductions—hence they aren’t going to use the charitable deduction. In fact, CBS News recently cited Tax Policy Center estimates that the number of taxpayers itemizing their charitable contributions will decrease by more than half to 16 million.
Without the incentive of a tax break, will people still give to nonprofits in record amounts? It’s too early to tell, but some early numbers indicate they won’t. In the same CBS News story, the Fundraising Effectiveness Project reported that nonprofits received 2.4% less in the first three months of 2018 than they did in 2017. Year over year, the total number of donors dropped 6.3%. And Michael Nilsen of the Association of Fundraising Professionals said that giving could drop anywhere from $13 billion to $20 billion each year.
Tax Opportunities You Can Plan For
Philanthropists-at-heart still have tax-planning opportunities. One potential strategy is to bunch your donations into a particular year. This could make itemizing your tax return (and thus taking your charitable contribution deduction) feasible.
If you have reached the age where you take required minimum distributions (RMDs), you may also consider donating your RMD to charity. Called a qualified charitable distribution (QCD), this donation allows you to transfer up to $100,000 from an IRA to charity. The amount you transfer will count toward your RMD. You also won’t have to pay income tax on the distribution as you normally would.
Give Because It’s Good
You may be too young to take RMDs, or you may not have a need to itemize. However, you can still give.
Ultimately, wealth isn’t just about our money. It is about how we use our resources to improve the quality of our lives. And one of the ways we can improve our lives is to improve the lives of others.
Giving to charity can change our perspective. We know that we are helping others, and that leaves us feeling more connected to our community and the world. Frankly, giving just makes us feel good. Plus, it can be a great family exercise that instills the value of sharing in our children.
Ultimately, a tax break shouldn’t be the reason that we give—it’s just a bonus. The opportunity to help others and thereby ourselves is all the reason—and reward—we need.
Wishing you and your loved ones a joyous Thanksgiving.