Charitable Donations Touched by Tax Reform Too

March 1 2018 | by Krista M. Gardner, CPA

It’s all in the name – Public Charities – Not-for-Profit organizations that receive a significant amount of their overall support from the public. While this support can come in many forms, the most common are cash donations through fundraising efforts, which the donor can then claim as a charitable deduction (in addition to that great feeling they have of supporting your charitable cause!). But really, that charitable deduction piece does play an important part in why, how and when donors give.

The Tax Reform Impact

Recent changes related to tax reform in the Tax Cuts and Jobs Act (TCJA) have created quite a stir, and the Not-for-Profit industry is not immune to its impact. Specifically, charitable contribution incentives for taxpayers have been greatly impacted in both positive ways and some potentially not so positive ways. On the favorable side, is the repeal of the Pease limitation, as well as an increase in the limit of charitable cash contributions related to Adjusted Gross Income. Changes that may have adverse effects on your donors include doubling the standard deduction, capping state and local tax deductions at $10,000, increasing estate tax exemptions and repealing the deduction for tickets to college athletic events.

This past January, Forbes published an article estimating that the number of individuals who will be able to take advantage of itemizing their charitable contributions would be half in 2018. Imagine if that was the only reason people gave to charities. The result would be a significant impact on your current fundraising needs and/or upcoming campaigns. Luckily, as I shared above, most of your supporters don’t typically contribute based solely on the ability to deduct the charitable donation on their taxes. However, it certainly could have an impact on not only how much they give, but how often they give.

The Donor “Double Up”

It’s important for not-for-profits to not only be prepared for conversations surrounding these changes with their supporters but also to be initiating those conversations. Perhaps it’s as part of your annual or semi-annual development calls with top donors. A popular conversation right now surrounds the “every other year” approach in which donors would alternate years giving to the charities they support, thus being able to “double up” their contributions one year to take advantage of itemized deductions and then minimizing donations in the following year, taking only the standard deduction.

The theory behind this approach is that charities would not see a decrease in total donations, but would see a change in when they receive these donations. Internally, this then sparks the need to start planning with management team members and staff regarding cash flow needs and budgeting, making any necessary adjustments based on the predicted availability of cash on hand.

Next Steps

Join me as I dig further into what impact the most recent tax reform may have on the donations and contributions your organization receives. We’ll cover how to plan when budgeting, tips for having conversations with your supporters, and assessing future cash flows. Additionally, we’ll review other regulatory changes that may have an impact on your organization right now and what to be thinking about today as you prepare for tomorrow.

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