Update on Tax Reform: December 20, 2017

The tax bill, which has now passed in both the Senate and House of Representatives and will make its way to the President’s desk for signature, will have major implications for all taxpayers. Here’s what you should know:

Johnson Amendment: The legislation would not change the Johnson Amendment. The prohibition on 501(c)(3) organizations being able to support/oppose candidates for public office remains in place.

Charitable Deductions: The legislation would create a direct impact on charitable giving by greatly reducing the number of individuals who itemize their tax deductions. The legislation increases the standard deduction from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples filing jointly. This would result in a massive decrease in the number of people who itemize their deductions. Only taxpayers who itemize may take charitable tax deductions.

The National Council of Nonprofits estimates that this increase to the standard deduction would result in the charitable deduction being out of reach of 90% of taxpayers. They also note that the Joint Committee on Taxation “estimates that itemized deductions will drop by $95 billion in 2018. Not all of this would disappear; the change is estimated to shrink giving to the work of charitable nonprofits by $13 billion or more each year. Estimates are that this drop in giving would cost 220,000 to 264,000 nonprofit jobs.”

Estate Tax: Similarly, the legislation would double the exemption to approximately $11 million for individuals ( approximately$22 million for couples). The estate tax is an important provision that incentivizes taxpayers to make donations to charities. By doubling the exemptions, fewer taxpayers would be incentivized to plan for charitable giving in their estate planning, potentially resulting in charitable giving decreasing by $4 billion a year.

Private Foundation Excise Tax:  The legislation does not alter the current excise tax rules.