Passage of the Tax Cuts and Jobs Act (TCJA) last year spread dismay in the nonprofit community. With several provisions in the law expected to depress charitable giving, nonprofits should mobilize to minimize the negative impact on their bottom lines.
The TCJA makes several changes that could reduce the tax incentive to donate. It:
One of the TCJA’s stated goals is to reduce the number of taxpayers who claim itemized deductions — and taxpayers who don’t itemize can’t claim charitable donation deductions. The nonpartisan Tax Policy Center estimates that the number of households claiming charitable deductions will fall from about 37 million to 16 million in 2018.
In the face of these challenges, many nonprofits will need to alter their donation solicitation strategies. For starters, you might consider encouraging existing donors and potential donors to:
There are other strategies for bumping up donations. Keep abreast of suggestions offered in the nonprofit community.
No one can say for certain how the TCJA will affect charitable giving going forward. But even if the direct consequences are less dire than predicted, these strategies can help your nonprofit maintain the steady donation levels you depend on to fulfill your mission.
To combat the new tax law’s donation disincentives, nonprofits should consider promoting a giving technique that’s available only to donors age 70½ or older — qualified charitable distributions (also known as charitable IRA rollovers).
Qualified taxpayers can transfer up to $100,000 to charitable organizations (other than donor-advised funds or private foundations) every year from their traditional IRA accounts. Married couples can distribute up to $200,000 annually. No charitable deduction is allowed, so it doesn’t matter if taxpayers itemize.
But, because the distribution is made directly by the IRA trustee to the charitable organization, the distribution from the IRA isn’t included in the taxpayer’s adjusted gross income (AGI). This reduces taxable income, makes it easier to obtain deductions subject to AGI floors and can avoid the net investment income tax. And, importantly, the payments count toward taxpayers’ required minimum distributions from IRAs.
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