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The TCJA’s Lingering Impact on Charitable Giving

December 03, 2019

Nonprofits, has fundraising been difficult lately? Due to changes under the Tax Cuts and Jobs Act (TCJA), donating to charity has become less tax-friendly. Here’s how organizations are coping.

Attention nonprofits, have you had a difficult time raising money in recent years? You’re not alone. Recent studies have shown that organizations across the country are facing new challenges when it comes to funding their programs. There was a 7% decline in charitable donations across the nation in 2019. How are organizations coping with this setback?

Why has fundraising been a challenge?

One of the main reasons raising money has been tough for nonprofits is due to changes made under the 2017 Tax Cuts and Jobs Act (TCJA). Check out our blog, How will the TCJA Impact my Charitable Deductions?

The TCJA doubled the standard deduction (up to $12,200 for individuals and $24,400 for couples in 2019). This has made itemizing deductions a less beneficial option for taxpayers in many cases. Itemizing means listing out each deduction you qualify for, the sum of which is used to lower your adjusted gross income. This decrease in itemizing deductions has caused taxpayers to lose tax benefits associated with charitable giving, since you can only deduct charitable donations if you itemize. So charitable contributions are only tax deductible for taxpayers whose itemized deductions exceed the standard deduction.

Although tax benefits are not the main reason people donate to charity, it certainly provides an extra incentive.

What should donors know?

For those taxpayers that have other itemized deductions that will put them close to the standard deduction, they might want to consider altering the timing of their gifts to preserve the tax benefit.

Many taxpayers may benefit from "bunching" their donations. Bunching is a strategy of consolidating tax-deductible donations that would normally be made over multiple years, into a single tax year. In 2018, many individuals doubled their contributions in order to get the tax benefit, which may have contributed to the reduction in contributions in 2019. The downside to this approach is that the donor won’t be supporting their charities consistently, and many organizations depend on these contributions.

Taxpayers can also use a donor advised fund along with bunching. This strategy is helpful because the taxpayer can make the donations to the donor advised fund in year one to get the deduction, then distribute the funds to their normal charities over multiple years. This way the charity(ies) continue to receive their funding as they normally would, and the taxpayer realizes the tax benefit. Donors can always make larger but less frequent gifts to a donor advised fund (DAF) to solve this problem. This triggers a tax deduction in the year the contributions are made, and directs the fund to make planned annual gifts to the taxpayer’s charities of choice.

Qualified Charitable Distributions (QCDs)

If a taxpayer is retired, there is another option to make tax advantaged charitable contributions. If a donor has a traditional individual retirement account (IRA) and has reached age 70 ½ (when you have to begin taking required minimum distributions (RMDs), from these accounts) he/she can direct some or all of these distributions to be paid to a qualified charity. Qualified Charitable Distributions, or QCDs, are not included in taxable income but still can be used to satisfy the taxpayer’s RMD.

The retiree can then reduce their taxable income but also take full advantage of the wider standard deduction. You are able to distribute up to $100,000 from an IRA to charity. QCDs can also keep income under the Medicare premium income thresholds.

How are organizations coping?

Certainly most organizations are hoping donors take these tax friendly routes to charitable contributions, but other than that, organizations have put more focus on:

Donor engagement - Consider meeting with your major donors and finding out why they continue to give to your organization. Show the donor how their gifts make an impact on advancing your mission.

Building a monthly giving program- Monthly gifts of $10, $20, or $50 can make a big impact on your services and help steady monthly cash flow.

Building a mobile presence- Online giving has become widely accepted in the nonprofit sector, and mobile giving is expected to become just as popular. According to a recent study by Nonprofits Source, 25% of donors complete donations on a mobile phone or tablet. In addition to that, 54% of all donors read emails from your organization on their mobile device, too.

Need advice on your organization’s fundraising? We can help.

The TCJA…So Many Changes, So Many Questions…we can help you navigate this huge tax overhaul! Visit our Tax Reform Center for everything you and your business need to know, now.

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