Previous IRS laws allowed taxpayers to avoid paying federal income tax on donations to qualified non-profit organizaions if they itemized their tax return.
However, with the passage of the recent tax reform bill, the number of people who qualify for the charitable deduction is projected to plummet next year from about 30 percent of tax filers to as low as 5 percent.
That’s because the new tax code nearly doubles the standard deduction and limits the value of other deductions, such as for state and local taxes.
The biggest change is expected to be among households earning $75,000 to $200,000 a year.
The tax changes come at a time when charities are already worried about the fate of small donors.
The new tax code further reduces the privileged status of charitable gifts, treating them the same as purchases from Walmart for the vast majority of taxpayers.
As a result, charities will face more uncertainty about finances in 2018 and beyond.
Some donors might not know about the tax code changes and continue donating as a result, only to be surprised when they pay taxes in 2019. Others might stop making regular $1,000-a-year donations and bundle several years together into a single $5,000 gift now to take advantage of the old tax rules.
This could create cash flow challenges for nonprofits.
Granted, charitable giving is not primarily inspired or motivated by tax legislation. However, the impact of the new tax reform upon middle class budgets may indeed affect the both the manner and amount which the vast majority of those who support charities continue to donate in order to continue the works of mercy these organizations provide.
Pastors of churches can expect to see significant changes in traditional patterns of donations and contributions in the year ahead.
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