Much has been written and spoken about the Tax Cuts and Jobs Act (TCJA), signed into law on December 22, 2017. One of the key provisions of the Act was that the standard deduction for taxpayers was roughly doubled, making it less likely for many taxpayers to itemize their deductions and diminishing the tax incentive for contributing to nonprofit organizations. Americans have historically been among the most generous in supporting nonprofits. While the impact of this change in the tax law is still unclear for many nonprofits, the expectation is that middle- and lower-income individuals and families may reduce their contributions because the tax incentive to contribute may be less than it was prior to TCJA passing.
But tax incentives are not the only factor to consider when making a donation to your favorite nonprofit organization. One important factor is whether the organization you are considering supporting is doing something that is important and in alignment with your values. This is why religious organizations and churches get such a large proportion (about one third) of charitable donations. Many people are passionate about helping support their church or other religious activities because the mission of their church aligns with their personal beliefs. Other nonprofit organizations are usually supported by people who share their values and see the mission as an important part of their community. For example, those who highly value education tend to support educational institutions.
Another thing to consider is how the donated funds will be used. Most people who donate want their money to be used to achieve the mission of the organization and are reluctant to give to fund overhead costs. It is important to realize that without effective leadership and operations staff, most nonprofits would never be able to use the remaining funds efficiently. In other words, some of the cost for a nonprofit must be for personnel rather than for programs. Looking at this balance can give a donor a good indication of how effective the organization is at meeting the goals of their mission.
In considering whether to donate to a nonprofit, funds are more likely to be put to good use in organizations that are willing to share their financial and operational data with donors. For well run organizations, reporting is regular, accurate, and available to potential and current donors.
As you begin planning your contributions for 2019, don't let the tax code decide to whom or how much you donate. While the financial implications are important, the church, club or charitable organization that depends on your giving will need your support now just as much as they did prior to when TCJA was passed.
Dr. David Reavis is a professor of management information systems and management at Texas A&M University-Texarkana.