Do people donate to charities out of the goodness of their hearts, or for a tax deduction?
Organizations such as United Way of Tarrant County will soon find out.
December is the biggest time of year for individuals to make donations to nonprofit organizations.
Federal tax law changes effective this year have dramatically increased the standard deduction for individuals on their income tax forms. Some observers have expressed concerned that charitable groups could see a dramatic drop in contributions, now that there is less financial incentive to give money to the needy and get a tax break in return.
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“This will be our first test to see whether or not adjustments in the tax law have made changes in peoples’ giving style,” said Leah King, United Way of Tarrant County senior vice president and chief development officer. “The real test may be next year, when everyone meets with their CPA and recognizes the changes.”
But King remains optimistic that in most cases Fort Worth-area residents make donations because they want to help the needy, not reduce their tax payment to Uncle Sam — especially given the country’s solid economic conditions.
“I would be hard-pressed to see people give less,” she said.
The social media campaign #GivingTuesday was expected to generate more than $270 million in online charitable donations, compared to $180 million in 2016 and just $10 million in 2012, according to Forbes.
But the tax incentive for such generosity is mostly gone.
The federal Tax Cuts and Jobs Act passed by Congress and signed by President Trump last year is expected to cut the number of households claiming an itemized deduction for charitable contributions in 2018 to 16 million, less than half the 37 million households who wrote off their financial gifts last year.
The new law nearly doubles the standard deduction to $12,000 for single income tax filers, $24,000 for couples — compared to $6,350 and $12,700, respectively. So there is less incentive for taxpayers to itemize their deductions — including medical costs, unreimbursed business expenses and charitable donations — to lower their tax bill.
But the question is, will they donate anyway?
Nationwide, donations are up 2.6 percent for the first three quarters of 2018 compared to a year ago, according to the Association of Fundraising Professionals. The group attributed the increase to a spike in gifts of $1,000 or more.
But many charities rely upon smaller gifts, and those donations are down 4.3 percent compared to 2017.
Even before the tax law changes, charitable donations to some groups were falling. For example, United Way of Tarrant County received $13.5 million in campaign contributions in fiscal year 2017, down from $15.3 million a year earlier, according to the organization’s financial statements.
Those figures don’t include recent contributions, because the organization’s fiscal year runs from June 30 to July 1 of each year.