Did the Trump Tax Act Stop the Top 5% from Giving the Charity?

Last week on Sunday, my 16 year old son, David, spent four hours studying World History, Chinese and Math. He has three exams on Monday. While watching him study, I thought about if he would study if he did not have these exams. This train of thought reminded me of the perception that the top 5% would only give to charity if they were given a tax benefit.

The Tax Cuts and Jobs Act (the “Tax Act”), which took effect in 2018, doubled the standard deduction. The standard deduction rose from $6,350 in 2017 to $12,000 for single individuals and $12,700 to $24,000 for those married filing jointly. The Tax Act makes major changes that will discourage charitable giving. It lowers individual income tax rates, thus reducing the value of all tax deductions.

There were a number of articles that discussed that the ultra-wealthy still will give the same to charities. One study showed that only 17% of the wealthy give to charity for tax benefits. https://www.marketwatch.com/story/how-the-1-give-to-charity-2018-11-27

The thought here is that wealthy individuals have more and feel like they can give more. Unfortunately, the data is showing the opposite. The Tax Act has removed some benefits for giving.

Overall, individual giving declined 1.1% in 2018 to $292.09 billion; it fell 3.4% adjusted for inflation, according to Giving USA 2019: The Annual Report on Philanthropy for the Year 2018. https://givingusa.org/, and giving by individuals decreased as a percentage of total giving from 70% in 2017 to 68% in 2018. Giving to religious institutions, which is done mostly by individuals – rather than foundations or corporations – also fell last year. (Total charity giving from foundations, corporations, bequests and individuals nudged up by 0.7%, to $427.71 billion in 2018, but declined by 1.7%, adjusted for inflation.)

So why is my son studying? Yes it is a fear of not doing well in High School. But could it be more, what drives him to sit and study on Sunday, while his friends are in their rooms playing interactive computer games? Maybe it is a drive to do the right thing and the desire to improve himself?

One of the areas that we are discussing this month’s Dine and Discover, is how to increase the tax benefit of charitable giving. This assumes that the audience has a desire to give.

Now, moving the discussion on how to maximize that charitable deduction. Remember, the goal of achieving your tax deduction is to maximize your itemized deductions; otherwise, your charitable donation will only help a charity and not reduce your effective tax rate. At the Dine and Discover, we will discuss the pro and cons of different ways of maximizing deductions. One of the areas that is becoming very popular is Donor Advised Funds. Properly using a Donor Advised Fund will allow you to have a tax deduction up front and still continue your normal multiple year contributions to charities. For example, if you normally donate $10,000 to charity, you could double the contribution to a Donor Advised Fund to $20,000 while still giving only $10,000 over the next 2 years to the same charity, but your tax return would show you having a $20,000 tax deduction which could allow you to itemize. Most people seem to have real estate taxes, mortgage interest, and charitable deductions and still fall short of the ability to itemize. Now with a Donor Advised Fund, you could increase your charitable deduction and itemize. This is another form of bunching expenses to reduce your tax rate.

David had a hard time sitting still for the full four hours of study. Maybe, if I made chocolate brownies he would have an easier time. Perhaps if the tools to reduce your taxes were easier to access, more people would give to charity.