End-of-year giving traditionally gives struggling nonprofits a way to make up for any lost ground and get a budgetary boost into the new year. Starting with Giving Tuesday (November 27 this year), the public is treated to, or annoyed by, a chorus of messages from needy nonprofits.
Despite any annoyance, many generous people respond, such that approximately 30% of individual giving happens in December.
We are weeks away, however, from what could be a seismic shift. The timing of holiday charitable gifts has—up to now—had a mixed motivation: not only seasonal generosity, but the urgency of racking up tax deductions for the coming year’s 1040 tax return.
That motivation is largely gone for the average donor, owing to the tax overhaul initiated by the Trump Administration. As described by Nolo’s tax expert Stephen Fishman, “taxpayers may deduct charitable contributions only if they itemize their personal deductions instead of taking the standard deduction . . . [so] the higher a taxpayer’s income, the more likely it is that he or she will itemize. . . A taxpayer should itemize only if his or her personal deductions—such as charitable contributions, mortgage interest, property tax, medical expenses—exceed the applicable standard deduction. .. The TCJA roughly double[d] these amounts to $12,000 for singles and $24,000 for marrieds filing jointly. As a result, the Urban-Brookings Tax Policy Center estimates that less than 5% of taxpayers will itemize.”
In short, a small minority of people will have any tax motivation to give to charity, going forward. Even for people who are naturally generous, this change makes giving to a 501(c)(3) charity no more appealing than, say, giving to a friend’s crowdfunding campaign for medical expenses or to a political campaign, or even handing a large bill straight to a homeless person.
U.S. charitable organizations are rightfully worried. Last year, giving from individuals (as opposed to foundations, corporations, and bequests) was their largest source (72%) of income. People poured $281.86 billion into the nonprofit sector.
Whether or not Congress intended it, this change has been called a “direct hit” on the U.S. nonprofit sector.
Development staff with whom I’ve spoken are trying to remain hopeful. They figure some donors are loyal no matter what. They’re more discreet about their hopes that some donors might continue to give on autopilot; and some may not even have realized the impact this tax change will have on them.
Still, the American Enterprise Institute estimates that individual giving will drop by 4%, or $17.2 billion this year as a result of the tax change. Other studies have reached similar conclusions. We’re about to find out whether their projections are right.