How Charities Are Coping With the New Contribution Rules After the 2017 Tax Reforms

For charities, the Tax Cuts and Jobs Act enacted in December 2017 has sparked soul-searching and creative solutions as concerns grow about giving challenges.

By Charley Jensen

With the increased estate and gift-tax exemption amounts, an expanded standard deduction available to individuals for federal income tax purposes and the reduced corporate income tax rate, many charities are rightly concerned that these tax law changes may result in reduced contributions
in 2018 and thereafter.

Non-profit organizations can take a number of steps to keep donors engaged and giving in this new tax environment.

Summarized below are potential considerations for charitable entities that need to address giving challenges:

  • Continue to advocate to donors to make required minimum distributions (RMDs) from IRAs directly to charities. Donors ages 70 nd over who make RMDs totaling up to $100,000 per year are not impacted by the tax changes to charitable contributions because these RMDs avoid the donor’s income tax return entirely. Many fundraising organizations are promoting such IRA programs to charities and charities are promoting IRA programs to donors.
  • Educate donors about the strategy of “bunching” deductions and then foregoing itemizing deductions in “nonbunching” years, using the dramatically increased standard deduction instead.
  • Donors who do not want to have such uneven contributions to favored charities should instead consider use of a donor-advised fund. Donors can make contributions to such funds every other year and use the fund to make level annual distributions to their favored charities. Donor advised funds have exploded in popularity and are easy to create at a low cost. The donor gets an up front income tax deduction upon funding a donor advised fund and no deduction when the fund pays charities. The fund can invest the funds received from the donor and any income or appreciation within the fund is not subject to income tax. Note:  the IRS is taking the position that such funds be restricted
    to gifts for which the donor receives no goods or services in return.
  • Resurrect or continue “gala” type events. Even though donors to such events do not get to deduct the fair value of goods or services they receive and in spite of the charitable deduction being of less value to them, many donors embrace these types of events for the social and business connection aspects.
  • Promote monthly withdrawals or automatic payments from bank accounts or credit cards (so called “sustained giving”) as an alternative to annual fund raising campaigns. Sustained giving is not so much income tax deduction driven and
    will more likely continue in the future. Once automatic payments are authorized, the
    charity is not re-
    quired to periodical-ly solicit the donor for additional contributions, so hopefully the donor will continue to authorize them, creating the sustained giving.  Many charities are promoting these sustained giving programs locally.
  • Advocate and engage donors on their dedication to your cause. Remind them of the importance of your mission, regardless of the availability of a charitable deduction for their contribution.
  • Encourage the use of estate tax driven or income tax driven gifts in the right circumstances, such as donor-advised funds discussed above, charitable remainder trusts or charitable income trusts. 

Charley Jensen is a partner in the tax and estate-planning practice at Stinson Leonard Street in Kansas City.