The latest federal tax overhaul is supposed to be better for the average taxpayer, but it could also could also drastically cut how much Americans choose to give to charities.
Why, you might ask, would something designed to put more money in wallets and purses be a problem for nonprofit agencies that rely on the kindness of donors?
As Business Report details in a new feature, in the simplest of terms its because giving to charity—and the accompanying tax write-off—is no longer the easiest way to reduce one’s tab to Uncle Sam.
Under the new law, rather than itemize their charitable deductions—a tradition in the United States since 1917—about 90% of taxpayers are now expected to instead take the nearly doubled standard deduction of $12,000 for individuals and $24,000 for married couples filing jointly.
Because of the new standard deduction, experts believe removing a key financial inducement to donate could shake up the pattern of individual giving to nonprofit organizations.
This change comes at a time when Baton Rouge-area nonprofits are already feeling pinched. The Capital Area United Way announced in late April that dozens of local nonprofit agencies receiving support from the organization will see a funding reduction this year by as much as 30%.
“We really won’t know until next year what this looks like,” says Gus Levy, a CPA and owner of The Levy Company. “But it could definitely have an impact. We could see people changing their tax strategy, maybe not in eliminating gifts, but in changing the amount they give.”
The charitable deduction used to allow the average taxpayer to reduce his or her tax liability by about 25 cents on the dollar, so donating $100 earned you a $25 return on your taxes. Everybody won, and although many give for more altruistic reasons, the Urban-Brookings Tax Policy Center, which provides independent analysis of current and long-term tax issues, estimates charities will see a decline of between $12 billion and $20 billion in 2018 as the new law goes into effect.
Read more about how this could affect Louisiana in the full Business Report feature. Send your comments to editor@businessreport.com
