Arkansas charities are speculating about whether the recent near-doubling of the standard deduction, very welcomed by taxpayers, will have an unintended effect on fundraising by reducing the incentive to itemize.
Under the Tax Jobs and Cuts Act signed by President Trump in December, the standard deduction for individuals went from $6.300 to $12,000. For married couples, it went from $12, 600 to $24,000. Only the itemization method of filing taxes, which is chosen by less than 30 percent of taxpayers according to the most recent IRS data, offers a way to deduct any charitable donations.
“Charities have an ongoing relationship with the donors that give annually, and they hope they will continue to give, regardless of whether they are itemizing or not,” said Ashley Coldiron, Chief Development Officer of the Arkansas Community Foundation, which supports Arkansas’s charities.
Coldiron said she hopes more people will consider bunching, which means that they can make one larger gift to a donor-advised fund in one year, itemize and take the deduction and then grant the money out over the next few years while taking the standard deduction. For example, a married couple could donate $30,000 to fund in one year, which would be larger than their $24,000 standard deduction. They could then use the fund to parcel the money out in smaller amounts to the charities they choose for the next few years. During that time, they could take the standard deduction.
Charities are also speculating on whether the recent tax change will alter the traditional giving season.
Larry Lieberman with the Charity Navigator, the nation’s largest evaluator of charitable groups, said the last few days of the year have become etched in many people’s minds as the proper time to write out checks to charity.
“As Americans, we’re sort of creatures of mass behavior,” he said, drawing a parallel between the purchases of chocolate and flowers on Valentine’s Day with the writing of charitable checks on December 30th and 31st.
Some charities are particularly worried about the larger gifts from wealthier individuals.
“I think what they’re most worried about is the larger donations and people that might donate more because they get the tax deduction,” said Coldiron.
“Our estimates are that of the 46 million taxpayers, roughly, that would have itemized under the previous law, that number would drop to about 20 million, so it’s a reduction by more than half,” said Joseph Rosenberg, a senior research associate with the Urban-Brookings Tax Policy Center.
But even those who are very concerned about the change agreed that there’s also room for optimism. The standard deduction means more money in people’s paychecks and pockets.
“If you love an organization, you need to continue to give to it,” said Coldiron, predicting that the extra dollars people may find themselves with as a result of the tax change might end up at their favorite charities and causes.
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