The Intersection of Taxes and Generosity

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People doing their taxes are generally not in the most generous mood. Tax preparation might turn people off of giving to charitable causes, but the tax code can encourage people to donate. A recent report from the Fundraising Effectiveness Project is leading some to worry that organizations relying on charitable contributions are about to take a hit.

The drops that form an ocean

Some organizations are lucky enough to have a few, highly-generous benefactors who contribute the bulk of their funding. Most rely on large numbers of donors, each contributing a relatively small amount. It is these donors that may be most susceptible to changing their donating habits based on changes to the tax code. If enough choose to donate less, or not at all, the end result can be catastrophic for charitable organizations all over the country.

Standard versus itemized deductions

The issue that fundraisers find so concerning is the increase in the standard deduction available to taxpayers. Charitable contributions of cash or property can be deducted from your taxes, but only if you itemize. If you choose the standard deduction, the tax benefits of charitable giving vanish.

This isn’t a loss to taxpayers. If they choose the standard deduction, it’s likely because that choice leads to a smaller tax bill. They could continue to donate as they always have and not be any worse off financially. But it does remove one justification for making a contribution in the first place. 

Charity does not begin at the IRS. People give for myriad reasons, with tax benefits being among the least common justifications. Still, the tax code has the power to change people’s behavior in small ways. Individually, this is of little concern. When taken a whole, small changes can have a big impact.

Managing Partner of Silver Tax Group, author of the book “Stop the IRS”. Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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