If you itemize your taxes then your philanthropic donations are deductible from your taxable income. New tax laws are increasing the threshold for itemizing deductions, but if you are still able to itemize, your deductions will still be deductible. That applies mostly to high income earners; the wealthy. If you and your family are middle income earners, you may be experiencing a change from the new tax laws. Increased standard deductions means you don’t have to itemize to get the same, or possibly a greater reduction in taxable income, so if you don’t make the charitable donations, you still reap the benefits. The deduction is now “baked in”, as it were.
That is no reason to not make your donations. You need to make all of the donations, and more, regardless of the tax implications. In fact, everyone should be giving ten percent of their incomes to church and/or charity. Don’t misunderstand: You should be taking advantage of every possible tax advantage and paying as little as possible to the government. Zero dollars is a good number in fact. Taxation is theft.
Tangent aside, nobody makes charitable donations for tax deductions. You give because it’s right. You support organizations who's work you believe in. It is important that you continue to do so, now more than ever. According to IRS data, in 2015 there were $415B in charitable donations. The real number is higher, based on the fact that donations made by people who don’t itemize deductions won’t show up on their tax filing. That’s a good number, but here is the challenge; over 80% of that number was from foundations and high net worth donors. They make big dollar gifts that have great impact, but receiving institutions face the risk of losing big dollars when those donors shift focus or change direction. The disparity is not trending in a favorable direction. That risk could be mitigated, to some degree by increased “check book philanthropy”. It is not safe to assume that some foundation will continue to support your favorite cause because they have been up until now. What you should do is write a slightly bigger check and encourage your friends and associates to do the same. This won’t even things out, far from it, but any shift in the balance towards smaller donations from many donors reduces the risk of de funding by a major source.
Another threat to our beloved not-for-profit arbiters of social good is specific to the new tax law. From a tax planning perspective, it makes sense to save your annual donations and make them in bigger amounts when you have enough money aside to make donations that will raise your itemization above the standard deduction threshold. [Write that down. There won’t be a lot of free-bees like that happening here.] This one is hard, because from a tax planning perspective you should definitely do that. From the perspective of the Montclair Art Museum (or whomever you do your giving with) it means uneven funding and less predictable cash flows that will make budgeting even harder. Donor coordination might help to avoid boom and bust cycles, but that seems hard. Someone smarter than me will have to sort that out.
The point here is that you should definitely consult your tax and financial planning professionals about structuring your philanthropic giving for maximum tax efficiency. Please be certain though that your philanthropic planning is about managing the “When?” and the “How?”. Leave the “Why?” and the “How much?” to your heart……and to the hard working Development staff at your favorite not-for-profit world changers.
William S Jiggetts