How the Proposed Tax Changes May Impact Charitable Giving
As the House and Senate Republicans release details on their proposed tax bills, many nonprofit organizations have been asking how the proposed changes may impact charitable giving. While the details of these bills are constantly evolving, and there are several additional components that may impact nonprofits internally (for instance, the 1.4% excise tax), there appears to be three primary issues that may impact charitable giving:
- Increase in the standard deduction. Both the Senate and the House versions of the bill increase the standard deduction to $12,000 for individuals and $24,000 for couples. This increase in the deduction would likely reduce the number of families who itemize their deductions and, as a result, receive a deduction for charitable gifts. Donors who are largely motivated by tax reasons to make gifts may be less likely to do so in the future.
- Elimination or limitation of the estate tax. It is important to note that there are inconsistencies between the House and Senate bills on this matter. Regardless, an elimination or reduction of the estate tax may impact estate planning and the charitable gifts that are motivated by this process. While those that would be impacted by this change are small in number, they are also many of the wealthiest families that are incentivized to build family foundations.
- Reduction of the corporate tax rate. The proposed reduction in the corporate tax rate in both versions of the bill (though delayed in the Senate version) may lead to reduced incentives for corporations to make charitable gifts. While this impact is concerning, it should be noted that corporate giving makes up a much smaller percentage of giving annually compared to giving from individuals (5% from corporations in 2016 versus 72% from individuals, not including family foundations—Giving USA 2017).
In conclusion, it is impossible to know what the short- and long-term impacts these proposed changes may have on philanthropy. Given that philanthropic giving remains constant at 2% of GDP, it is likely that whatever impact these changes have in the market will likely translate to a similar impact on philanthropy. Contact us today to learn more and stay tuned for additional analysis as the House and Senate versions are resolved and if these plans actually turn in to law.