Since the last time we talked about charitable gifting, the tax laws have changed. Some aspects of charitable gifting will be impacted, so you’ll want to do some planning soon, well before the calendar year comes to a close.
Gifts to charities are tax-deductible if you itemize deductions on Schedule A of your tax return (IRS Form 1040). There is a limit (now 60 percent of adjusted gross income, up from 50 percent).
The new law raises the amount of the standard deduction, which is a fixed dollar amount that all taxpayers benefit from, whether they donate or not. The 2018 single filers standard deduction is $12,000 (up from $6,350); for taxpayers who are married filing jointly, the 2018 standard deduction is $24,000 (up from $12,700).
That’s a significant dollar amount. With the standard deduction being so high, will taxpayers who don’t itemize continue to donate?
Who itemized before the tax law changed? How will that change as a result of the increased standard deduction?
Based on 2014 data reported last September (2017) by the Congressional Research Service, one out of three tax filers chose to itemize instead of taking the standard deduction. As one might deduce, more higher-income individuals chose to itemize than lower-income individuals.
About 2.2 million taxpayers whose adjusted gross income was $20,000 or less (representing 5 percent of taxpayers) itemized; it is interesting to note their average itemized deductions (per itemizer) claimed was substantial ($15,857) in relation to adjusted gross income. Charitable contributions were 7.7 percent of their income.
Seventeen percent of the taxpayers with adjusted gross income between $20,000 and $50,000 (7.8 million taxpayers) itemized (average deductions were $15,641). Charitable contributions represented 4 percent of their income.
Almost one out of two (46 percent) taxpayers with adjusted gross income between $50,000 and $100,000 (14.7 million taxpayers) itemized (average $19,187). Charitable giving was 2.8 percent of their income.
About 77 percent of taxpayers with adjusted gross incomes between $100,000 and $200,000 itemized the deductions (average deduction $25,598); 2.1 percent of their income was charitable deductions.
When you jump to the highest adjusted gross incomes (over $200,000), more than 90 percent itemized; about 2.4 percent of their incomes was charitable deductions.
See Itemized Tax Deductions for Individuals: Data Analysis Sept. 21, 2017, at fas.org/sgp/crs/misc/R43012.pdf
Will these taxpayers continue to itemize? Will charitable contributions be impacted if they don’t? Those are important questions for society to answer, since individual donations represent 80 percent of charitable funding ($282 billion in 2016), according to Giving USA 2017, the Annual Report on Philanthropy for the Year 2016. The remaining 20 percent came from foundations and corporations.
There are other motivations to charitable donations than reducing your tax bill.
According to the 2017 U.S. Trust Insights on Wealth and Worth survey, the overwhelming majority of wealthy families give to charity to strengthen family relationships. Eighty percent feel that familial charitable acts help instill a philanthropic drive in the next generation. Seventy-four percent of affluent families donate money or assets to charity; 69 percent volunteer their time, skills or services.
If you think about the dollar impact of making a gift versus the dollar benefit of a deduction, dollars and “sense” will tell you that a deduction cannot be the motivator.
“(A) charitable contribution deduction does not leave the taxpayer with more money,” explained attorney Forest J. Dorkowski in “The Tax Cuts and Jobs Act of 2017 How the Act Will Affect Individual Charitable Giving.”
“The fact is that making a charitable donation, despite the ability to claim a tax deduction, always leaves the taxpayer with less money than if they didn’t make the donation,” according to Dorkowski.
“As we know, the charitable deduction is just that, a deduction, and not a dollar-for-dollar credit against tax you otherwise owe.”
Will individuals change their minds about giving to charity if they don’t take a tax deduction for the gift? I don’t think so.
Tax deductions are all about itemizing. There are other tax benefits for charitable donations — we’ll talk more in future columns. In the meantime, email me (firstname.lastname@example.org) with your ideas about charitable gifting, especially if getting a tax deduction makes a difference to you. Include your state.
Julie Jason is a personal money manager at Jackson, Grant of Stamford, Conn., and an awardwinning author. Contact her at readers@juliejason. com.