Will New Tax Legislation Affect Giving At My Church?

There’s been much in the news that has raised alarm for charities after the tax bill passed at the end of 2017. To establish the context for this discussion, we note that one of the key components of the tax legislation is the increase of the standard deduction in 2018 for individual taxpayers to $12,000 for singles and $24,000 for married filers (these figures were $6,350 and $12,700, respectively, in 2017).

Because of this change, in order for a person to itemize deductions, the total of all deductions (i.e. mortgage interest, state and local taxes, charitable gifts, etc.) must exceed the standard deduction.

Essentially, for 2018 and going forward, a person must have double the amount of deductions of previous years before he or she can itemize. For the taxpayer, this is generally great news. It may certainly make preparing personal income taxes much easier and more people will have less of their income taxed. However, for charities and churches, some claim this is bad news, believing that someone will not give if he or she is unable to deduct the charitable contribution from his or her tax returns. As a leader in the financial ministry of your church, you may have some of the same concerns. While we will probably experience some type of impact because of the changes, we don’t believe things will change much for our Tennessee Baptist churches and institutions, and here’s why:

1. First and foremost, Christians support the local work of the church because we are called to give of our financial resources to the work of the Kingdom on earth. We know that our giving is from a spiritual perspective and conviction rather than from one that only considers the deductibility of the contribution. Is it nice to be able to take the deduction, if you qualify? Yes. Of course, it is, but we’re not told in Scripture that the cheerful giver was happy only because he got to deduct his contribution! People will still regularly give to his or her church because they want to see the Gospel reach others.

2. Secondly, in addressing the idea that people will only give if they can deduct the contribution, it’s important to note that currently (under the old tax regime) only around thirty percent (30%) of all taxpayers itemize their federal income (it’s estimated that this number could drop to five percent (5%) under the new tax laws). Thus, historically, approximately seventy percent (70%) of taxpayers have not deducted their charitable contributions from their income tax returns. It would be hard to believe that none of this 70% of the population ever gave to a charity. Too, while the charitable deduction has been part of our tax code since 1917—just four years after the introduction of the income tax—churches still received support before then from its members. Why would we think that might change?

3. Additionally, Congress left intact two significant sources of charitable giving—the gift of appreciated assets (i.e. stocks, bonds, real estate, etc.) and the Qualified Charitable Distribution from IRAs. Using these strategies, a charitably-inclined taxpayer can significantly reduce or even completely eliminate taxes that he or she would otherwise be obligated to pay. These are still fantastic avenues of charitable giving!

4. Finally, studies show when people have more income available to them, they are generally inclined to be more charitable. When the standard deduction is coupled with lower income tax rates, more people will have more money in their pockets. Historically, this has usually bode well for charities. When people feel more optimistic about their economic situation, they are more likely to share their wealth with charitable causes they support. The people in our pews should have this same experience.

Do we foresee any impact on charities? We do believe that charities that solicit larger, once-a-year, annual gifts may experience some variance in giving. Many of our Baptist institutions receive these types of gifts. If a donor has been accustomed to making a larger, annual gift to their favorite Baptist cause each year, they might consider combining a couple years of gifts into one tax year.

For example, if someone gives $10,000 at one time each year to a Baptist cause, they may make a $20,000 gift this year and forego next year’s gift, or they might wait until next year to make the $20,000 gift for both years. By making both gifts in one year, the donor is closer to surpassing the $24,000 standard deduction and may actually get to take a larger deduction (when combined with other deductible allowances) on their tax return.

While we know that we are in a new tax environment, overall, we believe that the changes are going to be positive for our Baptist churches and institutions. As a leader in a financial ministry, you will want to monitor your giving and ensure that you are engaging your people regularly about stewardship. Lead them in understanding that giving and generosity is part of our Christian walk, irrespective of our tax situation. And finally, even though we know we are dealing with some uncertainty in the charitable giving arena, more importantly, we also know that God will always be faithful in meeting our needs, both personally and in ministry (Philippians 4:19).  As we all know, God’s got this!

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Please note that the advice offered in this article is not intended to be construed as tax, legal or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for the reader. You should consult your own tax, legal and accounting advisors before engaging in any transaction.