It is true that the Tax Cuts and Jobs Act of 2017 is the most significant change to the nation’s tax policies in more than 30 years. We can anticipate the changes will have many profound effects throughout the American economy. However, I’m not terribly worried about how the changes will affect deserving nonprofit human services, and arts and cultural organizations, and here’s why.
Though some have expressed worries about how the expansion of the standard deduction may affect charitable giving by decreasing the number of people who itemize their deductions, the new law preserves some very powerful tax incentives that benefit charities.
First, the tax reform bill maintains the essential charitable deduction. Major donors who make large gifts exceeding their standard deduction will not be penalized for their generosity. Also, the new law expands the limitations for the charitable deduction, as gifts can now eliminate tax on up to 60% of one’s adjusted gross income, up from 50%. And for those who received significant tax relief, they will have more income from which to make charitable gifts.
The tax reform bill also decreases the percentage of estates that are subject to federal estate tax. Payment of federal estate tax will now be exceedingly rare. With reduced estate taxation, it may in fact be more practical for donors to use their tax savings for charitable purposes.
I’m also confident about the enduring values that make generous giving a part of the American way of life. Donors give to charities because they want to make a difference in their communities, support important work, celebrate innovation and imagination, and help make a better future. Tax implications for these givers are minimal.
The changes to our tax law are real. But I contend that the ideals that stimulate giving are just as real. Nonprofit organizations can rest assured that if they continue to communicate with their donors about the impact that private giving makes, support for their mission will remain stable, regardless of changes to the tax code.