Currently, the IRS reports that only one-third of Americans itemize their Federal taxes, but data from the Panel Study of Income Dynamics (PSID) reveals that 83% of these itemizers report charitable giving. Additionally, because of the strongly correlated relationship between the likelihood to itemize and higher household income, non-itemizers contribute less than 20 percent of total charitable giving dollars each year.
The Tax Cuts and Jobs Act has now raised the standard Federal tax deduction for a married couple to $24,000—and just as importantly, capped the itemized, total deduction of property, and state and local income taxes to just $10,000. Additionally, personal exemptions, home equity loan interest, job and moving expenses, and other miscellaneous deductions no longer qualify. Collectively, this means that the number of itemizers will likely decline in 2018.
A study commissioned by the Cornerstone Fund, a faith-based, socially responsible investment firm, finds that there is a great level of taxpayer uncertainty on whether they will, or will not, be able to itemize deductions in 2018. More than half (51.2%) of all respondents are unsure of their ability to itemize in 2018. In fact, 43.4% of current itemizers—those planning to itemize their 2017 Federal taxes—are simply unsure if they will be able to itemize next tax season.
The Cornerstone Fund study finds that this uncertainty strongly correlates with an uncertainty in a change in charitable giving in 2018. Of those who are unsure if they are itemizing taxes in 2018, one-third (33.1%) are unsure if their level of charitable giving will change. Seventeen percent (16.9%) already acknowledge that their level of giving will decrease as a direct result of the Tax Cuts and Jobs Act. A study by the Indiana University Lilly Family School of Philanthropy predicts that individual giving will drop by at least 4.0% in 2018.
“We know that, while giving to religious organizations has decreased in the last few decades, they are still the single biggest recipients of overall giving,” said Maria C. Coyne, President & CEO of the Cornerstone Fund. “Some churches and non-profit organizations depend more heavily on individual giving than others, but they all depend on it. This confirmed uncertainty in charitable giving means that religious organizations need to begin to get creative with alternative income streams—if they haven’t already.”
The study also found that almost two-thirds (60.2%) of respondents believe, at some level, that churches will need to explore other sources of income as a direct result of the pending individual and corporate tax changes. “We see many churches that are facing declining membership numbers, but we also see that these same churches are showing increasing numbers of community members served [by programs like food and clothing pantries and academic and athletic centers],” says Coyne. “Churches and other non-profit organizations can begin to immediately explore ways to use their property and land to not only further impact their communities, but also further strengthen their financial position.”
The Cornerstone Fund is also a low-cost lender to churches and religiously affiliated non-profit organizations; Trinity United Church of Christ (Chicago) and its Imani Village project is a current borrower of the Cornerstone Fund. The church’s multi-million dollar project includes the development and construction of affordable housing for seniors, an athletic center, a large farm that provides job training for people who have been released from prison, and a primary care clinic. “The possibilities are endless right now for churches,” says Coyne. “Communities need the church now more than ever, and there are ways to synergistically further the mission of the church and the health of each community.”
The Cornerstone Fund survey was conducted online by an independent research firm with 502 U.S. homeowners in January 2018. Expected margin of error is +/- 4.4%.