Not-for-profit organizations may not be the first thing that comes to mind when reviewing the provisions of the Tax Cuts and Jobs Act of 2017. However, this major tax reform significantly changes how taxes are assessed for corporations, pass-through entities, and individuals. These entities are a core component of a not-for-profit organization’s donor base, and what financially affects donors will financially affect not-for-profit organizations.
According to Charity Navigator, 72% of charitable giving in 2016 came from individuals. With this in mind, it important to note the Tax Cuts and Jobs Act just about doubled the standard deduction (increasing from $12,700 to $24,000 for married filers and from $6,350 to $12,000 for single filers). Also the property tax, sales tax, and state and local tax deduction has been limited to $10,000. With these changes, many filers who itemized in the past will likely no longer benefit from itemizing and choose the standard deduction instead.
If more individuals are choosing the standard deduction, there may be less incentive to contribute to not-for-profit organizations since the donation will not result in an income tax deduction. One strategy to circumvent this would be for donors to “bunch” their itemized deductions. For example, if a donor usually gives $5,000 a year, it may be more advantageous tax wise for a donor to contribute $10,000 every other year if this payment would put the donor over standard deduction threshold, allowing them to itemize every other year. Certainly implementing this strategy would impact a not-for-profit organization’s cash flow.
Not-for-profit organizations should begin thinking about the potential effects the Tax Cuts and Jobs Act could have on giving in order to maintain sustainability of the organization and its programs.
By: Sarah Bergman, CPA
Manager, Onisko & Scholz, CPAs