Church Giving and the New Tax Law: Your Stewardship Might Take a Hit

1/2/18 3:44 PM / by Denis Greene

The new tax law passed by Congress and signed by the president in December may affect church donations.


Although charitable contributions will continue to be deductible under the new law, an increase in the amount of the standard deduction is expected to discourage some donors from claiming the charitable deduction.


Currently about 30% of American taxpayers itemize their deductions, which is how charitable contributions can reduce their tax bill. Beginning in 2018, however, the standard deduction will double, so the number of people who itemize is expected to drop to about 10%. Most of those who do not itemize are low and moderate-income persons who make relatively modest charitable contributions. Wealthier taxpayers’ use of the charitable deduction is less likely to be affected by the new law.


For the large number of taxpayers who'll no longer itemize, "their cost of giving goes up dramatically," said Patrick Rooney, a professor of economic and philanthropy and director of the Lilly Family School of Philanthropy at Indiana University. "It will absolutely have a negative impact."


Rooney and his colleagues foresee a resulting drop in charitable donations of around $14 billion next year, or 5 percent of the $282 billion that U.S. charities pulled in last year.


However, religious congregations' donors may continue to commit small amounts or a percentage of their income regardless of tax incentives. That could make them less affected than arts and cultural organizations or research facilities and universities, which tend to attract more affluent donors who keep a close eye on their tax options, Rooney said.


Churches may want to publicize existing strategies that could now take on greater importance. For instance, taxpayers who are over 70 ½ can make a Qualified Charitable Donation (QCD) directly from their IRAs. Although this gift won’t qualify as a tax deduction, in many cases that won’t matter, since far fewer will be itemizing anyway… but the QCD counts toward the Required Minimum Distribution, meaning donors pay no taxes on the appreciated value of the gift. Given the remarkable growth in the value of equities, the QCD could be an attractive strategy to many donors. The only caveat: the donation must be made from the IRA directly to the charity, not to the donor.


Financial planners suggest other strategies too. Taxpayers may ‘bunch’ their anticipated charitable donations into one year (and thus be able to itemize the gift) rather than make annual donations over several years. Similarly, donors may want to establish a donor-advised fund, which could accomplish the same goal.


Only time will tell how the new tax policy will affect charitable, especially church, giving. Stewardship committees may want to begin discussing how the law will affect their particular congregation.


(The information above has been compiled from a number of published sources. It is intended only to encourage discussion and not to offer financial planning or giving advice).


Topics: Research & Statistics, Annual Campaign, Capital Campaigns

Denis Greene

Written by Denis Greene

Greene began working in the nonprofit development field in 1981. He founded Church Development in 1992 after a near-death experience motivated him to integrate his faith, education and skills in work that served the church and the virtue of stewardship. He has helped over 200 churches across the USA raise more than $200,000,000. He is the author of The Stewardship System, Stewardship-Based Capital Campaigns, and How To Ask For Donations as well as numerous articles on stewardship.

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