Nonprofits and donors alike are watching to see how the recently passed tax reform might affect charitable giving in 2018.
While some believe the loss of an income tax deduction will reduce donations, historical results from similar shifts in the economy or other tax law changes prove otherwise, according to Sun Health President & CEO, Ron Guziak. He feels the impact of tax reform on charitable giving may not be as great as some expect.
“Those who are generous do it because it’s in their DNA, not because of a tax deduction. People give to what they believe in or have experienced,” he says. “It comes from the heart, not the head.”
Most taxpayers can expect a “pay” increase with a reduced tax rate. There are three ways you might be impacted.
Charitable Deductions Remain, But Fewer Will Itemize.
The standard deduction has doubled to $12,000 for individuals and $24,000 for married couples, but with a lower tax rate and a larger standard deduction, fewer may itemize their tax return.
For those who continue to itemize deductions, the charitable deduction remains unchanged.
Lowered Income Tax Brackets Leaves More Cash in Your Pockets
Tax reform has shifted income tax brackets and for most, falling into a lower tax bracket means paying a smaller percentage of income as taxes. As a result, retirees continuing to work may see a bump in their income beginning in February. It won’t impact social security income, but may impact other income received.
Watch for the official 2018 Tax Tables to be released at the end of January.
Estate Tax Minimums & AGI Limitations Increase
For wealthier retirees, the tax reform may impact their charitable giving in two additional ways. The current adjusted gross income limitation for cash contributions has increased to 60 percent for cash gifts. The extra ten percent can be significant to some who wish to increase their donations.
Also, only those with extremely high net worth now pay estate, gift or generation-skipping taxes. If you’re planning a large charitable gift after death to reduce estate taxes, there’s no longer a need to wait.
It Will Be an Interesting Year
Tax reform is going to make an impact on charitable giving in 2018, but we’re optimistic it will be minimal. We’re closely watching to see how the new tax bill will impact deductions for taxpayers 65 and older, including medical expenses, health care premiums, Medicare and other issues of key importance to retirees. When it becomes available, we’ll share that information.
For specific tax planning advice, please contact a tax planning professional.
To learn more about how charitable giving can help with estate planning, the impact of the tax reform or how Sun Health impacts the West Valley as a result of charitable giving donations we receive, please contact Sun Health Foundation at 623.832.5330 or info@SunHealthFoundation.org.