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New data on Americans’ tax returns adds to the growing body of evidence that charities are taking a hit as a result of Trump’s overhaul of the tax system.
Taxpayers have itemized $54 billion less in charitable contributions so far this tax season compared to the previous year, according to new IRS stats .
‘It’s a big drop in dollars, but those numbers don’t tell the whole story. Just because someone isn’t itemizing anymore doesn’t mean they aren’t still giving.’
— Rick Cohen, National Council of Nonprofits
Charities have been bracing for a downturn in donations since the 2017 Tax Cuts and Jobs Act was signed into law. Some experts predicted charities could take a $21 billion hit in donations because of the new law.
“The amount is just jaw-dropping,” said Michel Nilsen, vice president of communications and public policy at the Association of Fundraising Professionals. “This is a really significant drop. This to me is a sign that giving was hurt.”
The TCJA doubled the standard deduction — the amount taxpayers are allowed to subtract from their taxable income to reduce their tax bill. Taxpayers can still itemize their deductions, but there’s less incentive to do that now that the standard deductions are higher. Many worried that would lead to fewer taxpayers itemizing, and in turn fewer people donating to charity as a way to get a deduction.
|Number of charitable contribution deductions||Dollar amount|
|As of late May, 2018||31,831,540||$147,280,329,000|
|As of late May, 2019||11,365,856||$92,960,837,000|
Those predictions appear to be coming true, according to the most recent IRS data. So far this tax season, 11 million taxpayers have itemized deductions for charitable contributions, compared to 31 million at this point in 2018.
A volatile stock market may have also dampened Americans’ enthusiasm for donating to charities.
However, these numbers could change as the IRS receives more tax returns. The agency has said it expects a record 14.6 million extension requests this year.
“It’s a big drop in dollars, but those numbers don’t tell the whole story,” said Rick Cohen, spokesman for the National Council of Nonprofits. “That’s just the dollars donated that someone got to write off on their taxes. Just because someone isn’t itemizing anymore doesn’t mean they aren’t still giving.”
Cohen added, “Most of the people who are no longer itemizing are (hopefully) still giving, but studies show that they may not give as much.”
Charities took in an estimated $427.71 billion overall in 2018. When adjusted for inflation, the figure represented a 1.7% decline in overall giving, according to Giving USA, an annual report on philanthropy released last month. The Giving USA estimates are made before final tax data is available, and its estimates are revised and updated as final tax return information about itemized deductions made by individuals, corporations, and estates becomes available.
“The change in itemization status is important because academic studies and historical tax data demonstrate that donors respond to incentives, including the ability to itemize charitable deductions,” the Giving USA report noted. “Giving USA will need to collect data for several additional years to better understand the full impact.”
The estimated dollar amount of donations from individual Americans dropped 1.1% (3.4% when adjusted for inflation) between 2018 and 2017, while donations from corporations and foundations — the charitable entities often established by wealthy families — increased by 5.4% and 7.3%, respectively (2.9% and 4.7% adjusted for inflation), Giving USA found.
Scott Hodge, president of the Tax Foundation, a conservative-leaning think tank in Washington, D.C., said it’s too early to draw broad conclusions about how the new tax law is affecting charitable giving. “I think when the dust clears, and the full data is in, you’d find that tax reform had little impact on giving,” Hodge said.
IRS data at this point in the tax season presents a skewed picture, he noted. “Most of the high-income taxpayers tend to file extensions and those late filers will undoubtedly be the itemizers,” Hodge said. “The early returns represent the simplest returns, such as 1040 EZs — in other words, the non-itemizers.”
And while the number of itemizers fell by about 66% (20 million), the amount of charitable deductions claimed declined by only 33% ($54 billion). “In other words, the decline in the dollar amount of contributions claimed is not proportional to the decline in the number of itemizers,” Hodge said. That could be because most of the people who no longer itemize because of the bigger standard deduction were at the lower end of the income scale and likely didn’t claim a lot of charitable deductions anyway, Hodge said.
Another caveat: Figures on itemized charitable contributions only show one way charities receive money. Charitable groups also get donations from corporations and private foundations, and some people continue to give to charity even if they don’t itemize it on their tax bill.
IRS figures also don’t account for people who donate to worthy causes on sites like GoFundMe; contributions on that crowdfunding site are generally made to individuals, not registered nonprofits, and are not tax deductible.