Tax law changes leave charitable incentives unscathed

Contrary to what you may have heard about the recently enacted “Tax Cuts and Jobs Act of 2017,” the deduction for charitable giving is alive and well.

Thanks to last-minute changes during the legislative process, the new law left the charitable deduction unscathed. For nonprofits in Northern Colorado, that’s reason to take an optimistic approach to the law. To do otherwise will only discourage donors and result in a self-fulfilling prophecy, cautions The Sharpe Group, one of the country’s leading nonprofit consulting firms. Knowing that donors are influenced by many things, nonprofits should focus on inspiring and engaging donors through their mission, by demonstrating the impact of their giving, and by helping donors to be a part of something bigger than themselves.

The charitable deduction traces its history back to the “War Revenue Act of 1917.”  When Congress raised taxes to finance World War I, there were concerns that charities would be adversely affected.  The Federal Income Tax had come about only a few years earlier with the passage of the 16th Amendment in 1913.  So, almost from the very beginning, the charitable deduction has been with us. 

Of the “big three” tax deductions — charitable gifts, mortgage interest, and state and local taxes — only the charitable deduction remained intact in the new tax law.  In fact, the charitable deduction was expanded so that cash gifts are now deductible up to 60 percent of AGI (adjusted gross income), up from 50 percent in the previous law.  For gifts of appreciated property, the limit remains unchanged at 30 percent of AGI. 

Yes, there is legitimate concern that fewer taxpayers will itemize, thus dulling the incentive for charitable gifts.  And, the estate tax has been all but eliminated for 99.9 percent of Americans, removing a significant motivation for estate gifts. But let’s look at why Americans may well continue to support charitable causes at an increasing rate.

The majority of wealth in America is not in checking accounts. That’s why university foundations and other large nonprofits learned long ago that motivating donors to give from “net worth” rather than from “cash flow” is the wisest strategy.

Today Baby Boomers, once focused primarily on accumulating assets, are beginning to focus on distributing those assets. State Street Global Advisors reports that between 2011 and 2048, $30 trillion to $41 trillion is expected to move from Baby Boomers to their children. Charitable bequests, gift annuities, charitable remainder trusts, and the IRA Rollover are among the gifting options unchanged in the new tax law. In Colorado, we also have amazing tax credits (e.g., 50 percent Child Care Tax Credit, 25 percent Enterprise Zone Tax Credit), enabling donors to give more than they might otherwise afford. More than ever before, local nonprofits are able to work with donors who care deeply about their missions and who make major gifts and planned gifts from accumulated assets.

This past fall, I was among hundreds of people who attended the Greeley Remarkable event at the new DoubleTree hotel in downtown Greeley.  The keynote speaker was David Salyers, author of a book titled “Remarkable.”  Salyers talked about the simple concept of a life focused on adding value versus extracting value. His book has given rise to the “Remarkable Movement” which inspires people to “create value, inspire hope, and be remarkable.”  Ultimately charitable giving flows from generosity and our desire to leave a positive mark on the world. That will always be the primary incentive for giving. Tax incentives have their place, and the role they play is not likely to be impacted in any meaningful way as a result the recent tax changes. So, let’s take David Salyers advice and focus on leading lives that add value to those around us. Northern Colorado is filled with extraordinary organizations that enrich our community in countless ways and give all of us the precious opportunity to be remarkable!   

Ray Caraway is president of the Community Foundation of Northern Colorado, which serves the region as a diligent steward of donor gifts. It also acts as a convener and facilitator for important community conversations on topics ranging from water to homelessness.

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