Donors May Not Understand How Tax Reform Affects Giving

Eighty-two percent of Americans who itemized charitable deductions on their 2017 tax returns plan to maintain or increase their giving this year, according to a survey released this week by Fidelity Charitable.

The poll also found that 58% of donors still planned to itemize in 2018, even though doing so may not be appropriate to their situations. This suggests many donors may not have fully worked out how the increased standard deduction in the revised tax code affects them, Fidelity Charitable said.

For example, half of households with incomes of less than $100,000 currently plan to itemize their 2018 taxes, the survey showed. Fidelity Charitable said most of these donors will likely discover that their itemizations, including charitable donations, will not push the total deduction amount past the new standard deduction thresholds of $12,000 and $24,000.

The poll also showed that charitably inclined Americans are unaware of strategies to manage deductions, such as “bunching” — grouping multiple years of deductions into a single year in order to surpass the standard deduction.

Only 30% of itemizers in the survey said they had heard of bunching, also known as stacking. This means that the vast majority of previous itemizers could miss out on ways to maximize their tax savings, according to Fidelity Charitable.

Data about itemizing income tax deductions came from a survey of 3,000 Americans who made charitable donations and itemized deductions on their tax returns in 2017. Data about 2018 giving and bunching came from a survey of 475 Americans who made donations to charity within the last two years and itemized tax deductions on their last federal tax return.

Fidelity Charitable said the survey findings reinforce the need for financial and tax advisors to be proactive in reaching out to clients with guidance on how to alter their philanthropic plans this year.

In addition, it said, charitable donors should seek information about the effect of tax reform on their personal situations, to best position them to make the best decisions regarding their year-end giving.

These are questions they should answer:

• Whether to make any adjustments to their giving plans
• Whether to give assets other than cash
• Whether to make use of strategies such as bunching or the use of charitable giving vehicles.

Fidelity Charitable has provided questions and resources for donors and financial and tax advisors.

— Check out 5 Tips for Advising Clients Who Want to Give Away Assets on ThinkAdvisor.