Nonprofits concerned, but optimistic, about laws

How will the new tax laws, the Tax Cut and Jobs Act of 2017, impact charitable contributions made by individuals, particularly those who are seeking a deduction for such donations?

The charitable deduction itself was left intact, but the changes almost "doubled" the standard deduction amount -- now being $12,000 for individuals and $24,000 for married couples filing jointly. With such a significant increase in the standard deduction, far fewer taxpayers may find it worthwhile to itemize, spurring concern that charitable giving will decrease.

There are a few options to keep in mind for those who no longer need to itemize but want to continue getting that tax deduction for charitable giving. One of the simplest strategies is a tactic known as "bunching." Only about 30 percent of itemizers have heard of "bunching" or stacking, leaving 70 percent missing out on this approach where taxpayers "bundle" multiple years of tax deductions into one year to surpass the standard deduction threshold and receive a greater tax savings. The choice would be to make your usual planned donation and prepay the subsequent calendar year's planned donation in December the same year. By doubling up on deductible contributions one year, you can make it worthwhile to itemize your taxes that year, and then simply take the standard deduction the following year, with no deductions for charitable giving.

"A donor-advised fund or charitable giving account enables you to use the bunching strategy really well," says Lindsey Simmons, Planned Giving director of the Arkansas Community Foundation. "By combining multiple years' worth of donations in a single year, you can receive the maximum tax benefits by claiming a large charitable donation upfront and having the fund dispersed to the charity of your choice over time."

Also, to be considered would be the IRA Rollover for a RMD (Required Minimum Distribution). When the funds are directed to an unrestricted fund at the Arkansas Community Foundation, the distribution becomes a charitable donation and is nontaxable income for the donor.

For many small local nonprofits, their bread and butter are those midlevel contributions, likely coming from the approximately 27 million households that will no longer be itemizing as a result of these tax changes. The nonprofit world is concerned, but optimistic. They believe in the generosity of people and we know that many people make contributions not because of the tax deduction but because they believe in the work a nonprofit is doing.

The questions many have is whether people will continue to give as much as they used to. People give because they believe in the mission. They give more because they're able to get that tax deduction. But when you take that tax deduction away, you take away the incentive and the ability to dig a little bit deeper. That's what many are concerned about. However, it's just too soon to tell. The jury is still out on the true impact of the Tax Cuts and Jobs Act changes and we will see even more indicators next year after a full tax filing season has elapsed.

Dan Messersmith is chairman of the board of the Hot Springs Area Community Foundation.

Editorial on 03/03/2019

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