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Tax Code Changes Affect Charitable Giving

Posted by Shannon Reichelt on
Tax Code Changes Affect Charitable Giving

The end of the year often signals an increase in charitable giving but changes made by tax reform have important implications for your donations this year and going forward.

Changes to the tax code included an increase in the standard deduction to $12,000 for single people and $24,000 for married couples filing jointly. The vast majority of Americans will now take the standard deduction on their tax returns, meaning they won’t itemize deductions, such as charitable giving. Those who stop itemizing their deductions will not receive a specific tax benefit for charitable giving.

However, most people don’t donate just to get the tax credit. The top three self-reported reasons why individuals give are: 1) passion; 2) impact; and 3) a desire to give back.

To make an impact on both your chosen charity and your tax obligations, consider bunching your donations into larger amounts given every other year. This may increase the likelihood of being able to itemize deductions in alternate years, plus the charity will get valuable funding that can be allotted over two fiscal years.  

If you choose to donate to a cause this December, whether by bunching or not, here are some important questions to ask before cutting the check:

Who Are They?

Whether it is a Massachusetts organization or based elsewhere, be sure you know exactly what kinds of programs it has in place before sending your check. Messages on TV or in an email that tug at the heart are commonplace to get us to take the extra step to donate. There’s nothing wrong with that but doing a little homework will go a long way toward making sure you’re making a good choice. Quick research done online can give you the facts you need.

Can I See the Financial Statements?

The group should be willing to share its Form 990, a tax return filed with the Internal Revenue Service, for the three most recent years. If the organization will not do so or does not have this information online, that should raise some red flags about the charity.

How Does the Charity Spend Its Money?

Among other data, the Form 990 will show program expenses, or how the group spends the money it collects. Check to see how much of your donation will actually go to the cause you support and how much will be spent on salaries and other organizational costs. The charity should be spending at least 75 percent of its budget on its charitable programs. Other expenses—such as fundraising and administrative costs—should not be higher than 25 percent.


How Do I Know the Charity Makes a Difference?

An organization may work diligently to effect change but that does not guarantee that its efforts are effective. You will want some reassurance that there is a legitimate need for the programs or services being given and that they are actually being used. If the organization provides after-school programs for inner-city children, for example, how many children are involved on a regular basis? If that number has risen in recent years, has the charity been able to adjust to the new demand? If the number has declined, can the charity explain why? It should be clear that the group has responded to changing circumstances and enhanced its programs over time.

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