The biggest U.S. tax overhaul in 30 years recently passed through the House and Senate filled with tax breaks, controversy and plenty of opinions. While there has been debate over whether the tax plan benefits the rich at the expense of the middle class or provides tax breaks that will stimulate the economy, there hasn’t been much said about the potential impact on the church.
One of the major changes the tax plan introduces is an increase to the standard deduction — nearly doubling the amount. This makes itemizing deductions for breaks on things such as mortgage interest, medical expenses and charitable deductions less attractive, incentivizing many filers to use the bigger standard deduction instead.
But what does this mean for the church?
While many in higher-income brackets will still benefit from itemizing deductions, the standard deduction will be a better option for much of the middle class.
The IRS estimates roughly 30 million households making between $50,000 and $100,000 will be less likely to itemize their deductions on their taxes. For those people, their charitable giving will effectively be taxed. Households whose itemized deductions total less than the new standard deduction would simply take the standard deduction regardless of their level of charitable giving.
It is difficult to say exactly how these changes will affect particular families. For example, households at the lower end of the range who give generously, recently bought a home, and also had unusually high medical bills may still itemize. However, households at the higher end of the range who give less and have no medical bills or other itemizations may opt for the standard deduction.
With this shift in incentives, it just won’t be financially beneficial for many to give to charities and nonprofits in 2018. Yes, generous people will continue to donate; however, many middle-income Americans will no longer financially benefit from charitable giving, potentially leading to less giving to your church.
This individual provision is not permanent and is set to expire after 2025.
As the tax plan rolls out in the coming years, make sure to check back in for more updates. If you have any questions or requests, feel free to reach out to us by using our contact form.