Getting a few dollars knocked off your tax bill probably isn’t the main reason you give to charity.
If you’re like most U.S. taxpayers, you give because you care about the health of children, a clean environment or great arts programming; because a neighbor asked you or because high-quality education is important. You give because you care about the quality of life in your community, and in the world.
Still, a little financial incentive certainly doesn’t hurt. And unfortunately, pending tax reforms may eliminate the value of the charitable-giving tax deduction for approximately 95 percent of Americans.
This is not to comment on the overall merits of tax reform. It’s to say that the tax-based incentives for charitable giving—on which most of us have relied for longer than we can remember—will likely be going away. If that’s the case, you may want to make charitable gifts now—before Jan. 1, 2018—to ensure you can take the deduction in the 2017 tax year.
To be clear, the ability to take a deduction is not at risk. However, proposed tax reforms may double the standard deduction, which would discourage the vast majority of taxpayers from itemizing their charitable-giving tax deductions and thus deducting charitable gifts from their taxable income.
We know that a tax deduction is not the primary reason that people donate to charity. Study after study has shown that people give because they want to make an impact and because it brings them joy. But the ability to take a tax deduction does affect how much people give to charity, according to preliminary research on the potential impact of tax reform. As one donor told us at the Delaware Community Foundation, “I will still give. I just might not give as much.”
Who loses in this scenario? Your favorite charity—and, most importantly, those it serves. This worries us here at the Delaware Community Foundation. The Tax Policy Center estimates that tax reform could result in an annual $12 billion to $20 billion drop in charitable giving.
But regardless of impending reforms, many taxpayers still have the opportunity to maximize the existing charitable-giving tax deduction between now and Dec. 31, 2017. While everyone should consult with a financial adviser before making any major decisions, there are a few tactics that may be advantageous:
- First, consider making next year’s charitable donations right now. If you typically give to certain organizations each year, both you and the recipients may benefit from donations that have been accelerated to the 2017 tax year.
- Second, talk to your financial adviser about whether a donor-advised fund or similar vehicle might be right for you. (With a donor-advised fund, you can donate to a local community foundation fund, take a tax deduction immediately, and then decide later which nonprofits to support when—with the added benefit of community knowledge and philanthropic expertise from the foundation team.)
We are confident that next year and beyond, Delawareans will continue to support charities and causes that matter to our communities. At the same time, tax policy matters. During this season of giving (and last-minute financial planning), we encourage you to determine how you can maximize the existing charitable-giving tax deduction—and, as a result, maximize your impact in the First State.
Stuart Comstock-Gay is president and CEO of the Delaware Community Foundation. Read more about him in our February 2017 profile.