Personal Finance

Charitable contributions take a hit following tax reform

Key Points
  • On the heels of the new tax law, Americans gave $427.71 billion to charity in 2018, according to a new report.
  • Total contributions rose less than 1% from the year earlier, not enough to keep pace with inflation.
Tomoji Hirakata | Getty Images

People don't necessarily donate to charity because of tax benefit. At the same time, without it, they are likely to give less.

After years of strong growth, total charitable giving rose just 0.7% in 2018, according to a new report on philanthropy by Giving USA. When adjusted for inflation, total giving declined 1.7%.

Last year was the first time the impact of the new tax law, which eliminated or sharply reduced the benefits of charitable giving for many would-be donors, could be measured.

Altogether, individuals, bequests, foundations and corporations donated an estimated $427.71 billion to U.S. charities in 2018, Giving USA said. But giving by individuals fell, while contributions from foundations and corporations rose.

"We certainly do have a pretty stark picture that tax reform took effect and charitable giving declined," said Laura MacDonald, the president of Benefactor Group and vice chair of the Giving USA foundation board. However, a volatile stock market, which took a dive near the end of the year, may have also played a role, she said.

Getting the most out of your charitable donations
Getting the most out of your charitable donations

Even though the deduction for donations was unchanged in the Tax Cuts and Jobs Act, individuals still need to itemize to claim it, and that's a much higher bar with the nearly doubled standard deduction.

Under the new law, total itemized deductions must exceed $12,000, the new standard deduction, up from the former $6,350 standard deduction, for single people. Married couples need deductions exceeding $24,000, up from $12,700.

As a result, fewer people itemize, which means many don't reap the tax benefits of their charitable contributions.

One analysis from the Tax Policy Center estimated that the number of itemizers fell from to about 19 million under the new tax law from about 46 million. At the same time, lower tax rates reduced the marginal benefit of giving, as well, the Tax Policy Center said.

"Tax reform probably hit the middle households that used to itemize the hardest," MacDonald said. Middle- and lower-income families reduced giving as a result — a shift that could prove problematic for non-profits in the long run, she said. "The more that revenue is concentrated in a few sources, the more risk there is."

Separate numbers from the Fundraising Effectiveness Project showed a near 3% increase in large gifts, defined as $1,000 or more in 2018. But modest gifts between $250 and $999 fell by 4% and gifts under $250 dropped by more than 4%. The total number of donors also declined.

More from Personal Finance:
Could charitable giving become a tax law casualty?
How to make the most of your charitable donations
Millionaires still plan to give a lot despite tax changes

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