2017 Tax Reform and charitable giving: “Doom and Gloom” or perhaps just “Meh”?

Wed, 12/27/2017 - 3:00pm

About this blog:

  • Sarah Ruef-Lindquist

    Sarah Ruef-Lindquist, JD, CTFA

    Sarah believes sound, thoughtful planning is a gift we give ourselves, our families and our community.

    She is a lawyer and seasoned non-profit executive who has worked with dozens of organizations, individuals and families as a philanthropic advisor and senior trust officer. She holds the Certified Trust and Financial Advisor certification and FINRA Series 7 and 66 registrations through Commonwealth Financial Network. Sarah and her husband live in Camden. The Financial Advisors of Allen and Insurance Financial are Registered Representatives and Investment Adviser Representatives with/and offer securities and advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Allen Insurance and Financial, 31 Chestnut Street, Camden, ME 04843. 207-236-8376.

There has been an income tax charitable deduction in the US since 1917. For 100 years, those who itemize deductions have been able to take a deduction for gifts to charities, with some limitations based mostly on a taxpayer’s adjusted gross income.

We have all been reading about the change in the individual income tax laws, the doubling of the standard deduction and the predictions about the impact on charitable giving.  A  November 16, 2017 Forbes article on line cited a potential impact of as much as $13 billion less in charitable giving as a result of the doubling of the standard deduction, with the amount of itemizers decreasing from 33% to 5%, according to the Tax Policy Center cited in the article. This assumes that what motivates charitable giving is a tax deduction.

According to the Giving in Maine 2017[1] report of the Maine Philanthropy Center, regarding 2015 “Declared charitable deductions represent approximately 80% of total dollars given by individuals” meaning there’s another 20% who don’t itemize, but still give. We are all familiar with the pattern of giving late in December, before the end of the year.  Charities do get the majority of their gifts from individuals during the last two months of the calendar year, suggesting a tax motivation for giving.

But do the 80% Mainers who itemize give because they get a tax deduction? I don’t think so.  How do you explain the other 20% that do give, and still don’t itemize? A deduction is a nice benefit, but if it were truly the motivator, only people who got a deduction would make gifts, and we know that is not the case.

I believe that people give to charities because they believe in the importance of the work that the charity is doing, and want to support it. The fact that they can get a tax deduction is icing on the cake, but not the real reason they give.  I predict that rather than there being a drop of $13 billion in giving in 2018, without the incentive to deduct a charitable gift, there will be in an increase in charitable giving, because if people have more to give, they will give more.  I know that if I were sitting down to write my charitable gift checks today, and there was no tax incentive for me to do so, I would still write those checks. And if I knew my tax liability for the year was going to be smaller, because the standard deduction I can use is larger than my historic itemizations AND I had a lower tax rate, I might actually make my charitable gifts larger, because I could. That should be the case a year from now.

Giving USA[2] reported in 2017 that in 2016, total charitable giving in the US was $390.05 billion, 72% of that from living individuals. The figures for 2017 won’t be out until around June of 2018, and the figures for 2018 won’t be available until a year after that, so we won’t know for a while what impact – positive or negative – 2017 tax reform may have. Let’s all remember why we support charitable causes with our gifts, and that in years when we have even more to give, we might just plan to give more.

[2] Giving USA is Giving USA 2017: The Annual Report on Philanthropy for the Year 2016, a publication of Giving USA Foundation, 2017, researched and written by the Indiana University Lilly Family School of Philanthropy. Available online at www.givingusa.org.