I have to confess when it comes to calculating and filing my taxes, I am a procrastinator. It is not that I am unaware of where I will likely stand on the subject at the end of the day; it is just a task that I do not enjoy. Ok, no one does unless it is some of our CPA friends. As a person who needs to file quarterly estimates for both me and my spouse I want to know where we stand in advance. We cannot set it and ride out the year.
Knowing this I’ve paid greater attention because of all the speculation about the new tax law. The Tax Cuts and Jobs Act (TCJA), which was passed in December 2017 and took effect this past year, doubled the standard deduction. The standard deduction rose from $6,350 in 2017 to $12,000 for single individuals and $12,700 to $24,000 for those married filing jointly.
Since it passed everyone associated with charitable giving has speculated and looked for evidence to predict what the outcome will be for the church and the charitable organizations who depend on contributions to fulfill their mission.
For those who were not an itemizer before the new law and the very wealthy who can continue to itemize there will likely be little change. The real possibility of a shift lies in the middle two thirds which will find themselves with a new reality. My charitable giving doesn’t affect my tax outcome. Why do I give?
Quoted in a recent Association Now articlePatrick Rooney, executive associate dean for academic programs at the Indiana University Lilly Family School of Philanthropy said, “I think there is a lot going on in how donors are reacting.” The impact of changes like this are historically clear, said Rooney, who pointed to a longitudinal study that has followed the same households since 1968. “We can see over time how individuals who were itemizers one year and then become non-itemizers change their behavior,” Rooney said. “That itemization status makes a difference for many households. Some people reduce their giving, and some don’t give at all.”
According to a U.S. Trust study on high net worth philanthropy, the wealthy are the least likely to change their habits. A majority of wealthy donors said they expect to maintain their giving levels (84%) and another 4% said they intend to increase that amount in 2018, regardless of the new tax law.
Today we still do not know the full impact, if any, for congregations. It is clear there is a new day in how giving and taxes intersect. So, what can church leaders do now that our first cycle is complete?
- Pay attention to individual giving patterns. Don’t assume if the giving pattern didn’t change in the first year we are done and there will not be a shift. Many donors have just now experience the truth of their new tax situation. Will knowing their charitable giving no longer affects their tax bill change their habits? Past patterns would indicate that it is likely an outcome.
- Watch for givers who start to bundle. If you see donors give almost double in the previous year or give nothing, it may be wise to have a conversation. Many financial advisors are suggesting a strategy call bundling. Give double in one year and nothing in another. If this occurs in your donor base, you may need to rethink cash flow and how to manage these kinds of gifts.
- Focus your conversation about giving on the message of what the gifts ministry result will be not on the value of the gift for tax purposes. Tell the stories of the ministry of the church not the tax break of the donor. What will happen as a result of the gift?
- For the church, the biblical narrative and teachings of Jesus are clear, giving is a discipline in response to God’s generous outpouring. Framing the money conversation around this is more important than telling the tax benefits.
The important thing is not to panic, but to pay attention. Let the money story be a year-round conversation. Continue to watch as meaningful research emerges.