I saw several predictions from various sources that charitable organizations would suffer greatly from the tax reform act. Because of the large increases to standard deductions in the tax reform act, far less taxpayers are itemizing deductions. Therefore the prediction was that since less people would get a tax benefit from charitable deductions that many would stop donating to charities.
I have always believed that people donated to charity because they cared about the particular cause they were supporting and not because of the tax deduction. According to a survey by the Blackbaud Institute, apparently I was right. Although far less taxpayers benefited from charitable deductions, overall charitable giving increased by roughly 1.5% according to their data.
Many people are very confused when it comes to tax law and believe that anything that lowers their tax liability must be a good thing. Let me briefly explain how a taxpayer benefits from a charitable contribution. Let’s assume that Tommy Taxhater is single and makes over 500,000 in income and is in the top tax bracket of 37%. If he already has enough deductions to benefit from itemizing deductions, an additional 10,000 donation to a qualified charity would save him 3,700 in federal taxes. (10,000 x 37%) What a great deal. Tommy just paid 10,000 for a 3,700 dollar benefit. If Tommy is passionate about the charity and wants to give them 10,000 then he gets to support the charity of his choice and also as a bonus he gets a tax deduction, but donating solely for a tax deduction makes no sense.
If you happen to know anyone who still insists on doing things solely because they are tax deductible, I would be happy to direct them to a number of local charities that could make good use of however much they would like to donate.