Home Church Management How The New Tax Plan Might Affect The Contributions You Receive

How The New Tax Plan Might Affect The Contributions You Receive

by Clay Harmon

When the Trump Administration passed the new tax plan in December of 2017, the standard deduction people could claim on their taxes about doubled. What does this mean? And how will your organization be affected?

When Americans file their taxes each spring for their previous year’s income, the bottom chunk of the money they made isn’t taxed. How big that bottom chunk is depends on whether you choose the standard deduction amount or the itemized deduction amount.

Standard Deductions vs. Itemized Deductions

  • Standard deduction (previous): About $13,000 for married couples and $6,500 for a single person.
  • Itemized deduction amount: Adding together expenses you paid, such as mortgage interest, state and local taxes, medical and dental expenses, charitable gifts and donations, etc. This is either greater than or less than $13,000 for married couples and $6,500 for single people.

If the amount you could claim as itemized deductions exceeded the standard deduction amount, then you would choose this route instead of the standard deduction so more of your bottom chunk isn’t taxed.

What Happens When The Standard Deduction Increases?

When the Trump Administration’s tax plan passed, it increased the standard deduction amount to about twice as much as before: $24,400 for married couples and $12,200 for a single person. This means in 2019, many more people will choose standard deductions instead of itemized deductions, since it will be much harder for all your itemized deductions to be greater than $24,400 for married couples or $12,200 for single people.

What Does This Mean For Your Organization?

The million-dollar question is whether or not people are motivated to give to nonprofits, charities, and churches in order to include those charitable donations on their itemized tax deductions list.

If people were motivated to give so they could have a larger chunk of their income tax-free, then the conclusion some experts are making is fewer people will donate because they would rather claim the standard deduction on their tax filing. On the flip side, others argue people don’t give for the tax benefit, so nothing will change.

It is forecasted that the number of Americans foregoing the standard deduction to claim itemized deductions will fall from just over 26% to less than 8%. If you look at the $100,000 to $200,000 income bracket, that forecast goes from nearly 73% of people claiming itemized deductions to under 20% in tax reform.

How State Taxes Affect Deductions

Another reason people will choose standard deductions over itemized deductions is due to the new cap on how much state tax you can claim. Before, there was no limit, but now you will only be able to claim up to $10,000 that you’ve paid in state tax. This will make it that much harder to exceed the $24,400 standard deduction limit, which is when people would choose itemized deductions instead.

Whether charitable contributions will decrease or stay the same is a hot-button topic, so it is now more important than ever for your organization to start monitoring contributions for the upcoming year. With Aplos, you will be able to manage your donations and identify any trends for 2019 and beyond.

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