New tax rules on donations
Taxpayers and their accountants are wondering about the effect of the Tax Cut and Jobs Act signed into law Friday, but one group that is particularly interested in what lies in wait for 2018, when the new tax rules take effect, is nonprofit organizations.
The expansion of the standard deduction — which will nearly double to $24,000 for a married couple filing a joint return — will remove the need for thousands of taxpayers to itemize deductions to get the most out of tax breaks, and that might mean fewer people will use the charitable gift deduction on their tax returns.
Removal of that option could mean people will be less generous with their contributions to charities and churches. The deduction will still exist, but far fewer people, particularly in lower income brackets, are likely to use it.
Accountants are advising their clients to make any large gifts planned before the end of the year to receive the maximum tax benefits.
“That’s the biggest thing with federal tax that will hit us before the end of the year,” said Jenna Burns, a CPA partner with Perry and Associates in Marietta. “You would want to do it now versus doing it in 2018, and that’s something you’d want to talk to your accountant about.”
With the standard deduction having gone from $12,600 to $24,000 for married-filing-jointly returns — for single filers, the deduction goes from $6,350 to $12,000 — the threshold at which taxpayers get benefits from itemizing deductions will be much harder to meet next year, she said.
“Those who itemize this year might want to donate a little more to charity this year, and those who were waiting, for example, to write a check to their church in the new year might want to do it now,” she said.
David Tenney of Tenney and Associates said in addition to the higher standard deduction, many people will take advantage of the new system’s ease of preparation. Using the itemized deduction schedule included the need to keep track of mortgage interest, local and state taxes and other deductible expenses as well as charitable contributions.
“It will simplify tax preparation for many people,” Tenney said. “Those who itemized had a lot of record keeping to do, but once they get adjusted to this, it will make tax filing a lot easier in the future. These changes were aimed at a certain group of people that were just over the standard deduction level.”
“It will be interesting to see what the impact is on giving in 2018,” Tenney said. “I’ve seen a lot of people saying they expect it to go down, but I don’t necessarily think that will be the case.”
For taxpayers in the 25 percent bracket — those whose joint income is about $37,000 to $92,000 — a charitable gift of $100 could mean a $25 reduction in taxes payable.
Churches stand to be affected by the change, but at least one Marietta church leader expressed confidence that the removal of a tax deduction won’t make people less generous.
Rev. Linda Steelman of First Congregational United Church of Christ said the tax break isn’t the primary reason for giving.
“People give, especially to something like a benevolent cause, because they want to support its purpose, not necessarily to get the tax deduction,” she said. “I really believe people give because they want to.”
Steelman said the church provides space for those who serve Franciscan Meals and for a community food pantry.
“People will continue to get those meals, people are going to eat next year, people will continue to contribute,” she said. “We have a very generous community, and it has delighted me since I moved here 20 years ago. It’s nice to be a part of it.
“People have handed me money, or slipped it under the door, and said, ‘You’ll know what to do with this.’ We’ve had people who need things done, especially the elderly, and those things get done, whether it’s work around the house, or clothing they need. We have a pet benevolence fund for people whose pets have died, they make a gift in the pet’s memory. I don’t think that kind of thing is going to stop, unless I’ve read Marietta very wrong.”
In 2015, tax filers in ZIP code 45750 declared charitable contributions of $8,073,000 on their tax returns, according to IRS data. Of those, $1,592,000 were declared by tax filers with less than $75,000 in Adjusted Gross Income. The contributions, which represent only the fraction declared on tax returns, amounted to $296 for every man, woman and child in the ZIP code.
At a glance
Taxes and charity in ZIP code 45750
¯ Population: 27,252.
¯ Number of federal tax returns filed, 2015: 12,240.
¯ Adjusted Gross Income, all filers: $666,598,000.
¯ Contributions total of itemized returns: $8,073,000.
¯ Returns filed with AGI less than $75,000: 10,600.
¯ Itemized contributions for filers with AGI under $75,000: $1,592,000.
Sources: IRS, Census Bureau.