In 2017, the Tax Cut and Jobs Act gave charities great concern that donations would be falling. This is because the standard deduction was doubled (to $24,000 for married couples filing jointly) and other deductions (such as State taxes and mortgage interest) were capped. Fewer people would itemize deductions on their 2018 tax returns, and without a tax benefit to their charitable contribution, they would give less. New data shows that those fears were well-founded.
In 2018, a year of record employment and sustained economic growth, the number of taxpayers who itemized dropped from 46 million to 19 million. Individual giving declined 1.1% in 2018 to $292.09 billion; and it fell 3.4% adjusted for inflation, according to Giving USA 2019: The Annual Report on Philanthropy for the Year 2018. Giving to religious organizations also declined.
This drop is explained in part by tax planning by many individuals in anticipation of the new law going into effect. Giving in 2017 had increased by an unusually high 5.7%. Many donors gave their 2018 contributions at the end of 2017, to get the tax benefit while it remained. Also, there was a decline in the stock market at the end of the year, when many were considering making donations. Still, the decline in individual giving is a concern to many charitable organizations, and is the first drop since 2013.
A deeper look at the numbers seems to confirm that the decline is in response to the tax law. The drop is essentially all attributable to gifts of under $1,000 which fell much more dramatically. In other words, the decline was in middle-class donations, the group that has lost the benefit of itemization.
Giving by foundations and corporations nudged up slightly, but total giving in the year still declined by 1.7%, adjusted for inflation. Altogether about $427 billion was given to charities in 2018.
Certainly, most people do not give because of the tax deduction – they give because they care about the need and believe in the organization. But how much they give is impacted by the tax benefit that they receive. Religious and charitable organizations need to take notice of the impact of the law, and make their plans accordingly.
The Church and Non-Profit law group at Ferguson, Schetelich & Ballew provides comprehensive representation to religious and secular charitable organizations, working from shared values to help them met their mission goals.