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A Taxing Dilemma

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We are a world of givers. Nearly $400 billion in donations provided nonprofit charities around the world with funding in 2016, an increase of 2.7 percent, according to charitynavigator.com, and an increase reflecting a nearly 40-year trend. Much of that money came from individual donations. People recognize the value in supporting organizations that reach out to the less fortunate, provide research funding, help in times of disaster, and improve daily life for those who are struggling.

If the generosity of Newtown residents that comes to our attention is any indication, charitable donations are a priority. But nonprofits are concerned that tax reform could mean less money in their coffers.

The new tax laws seem to support charitable donating, at first glance. Individuals will be able to deduct 60 percent of cash donations to charity, up from 50 percent. What has perhaps been a subconscious motivation in charitable donations is the knowledge that those donations are tax deductible. Knowing that at the year's end it can mean writing a smaller check to the IRS, upping a donation from $25 to $50, or $1,000 to $3,500 seems a reasonable move. There is a feel-good factor to bumping up donations to spread the wealth - and lessen the tax impact.

So what is it that has nonprofit charities on edge?

The tax plan will double the standard deduction for individuals and for families; that could mean fewer people bother to itemize - making a charitable deduction less attractive. That $25 donation might sink to $10, that $1,000 to $100 - or maybe none at all.

A report by the Lilly Family School of Philanthropy at Indiana University way last May feared that "increasing the standard deduction would decrease charitable giving by $11.0 billion..." if taxpayers respond to the new laws by opting for the larger standard deduction.

Donations may drop, but the need for funding will not decrease. Children will still be hungry. The environment will still need protection. Houses of worship will continue to need support. Health initiatives worldwide will remain as great a need or greater. As natural disasters tick upward - think tornadoes, hurricanes, tsunamis, blizzards, floods - aid will remain as necessary and as costly as ever. The ability to help others on the local, national, and global levels could be greatly impacted if charities' fiscal belts are further tightened.

Financial advisors can determine if a particular situation benefits from continuing to itemize or taking the new, larger standard deduction. But if tax reform means reconsidering which charities to support and by how much, keep in mind that all of us may be just one disaster away from needing help provided by nonprofits around the world. Without continued support at the levels reflected these past several decades, a shrug of the shoulders and a pat on the back may be all that some nonprofits will one day be able to offer.

We are a world of givers. Celebrate that designation - reforming your tax situation while remembering the charities that benefit so many.

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