It’s Tax-Deductible—So What?

Year-end is coming. Time to start emphasizing tax-deductions. Not so fast.

Pivotal Legislation

If passed this week, the new Republican tax legislation will “simplify” the tax code and increase the standard deduction; thereby reducing the number of people who itemize their taxes. The Financial Times reports “under current law, the Joint Committee on Taxation (JCT) predicts that next year 40.7 million taxpayers would deduct charitable contributions from their tax bills. If the House bill becomes law, that number would fall to 9.4 million taxpayers.”

According to JCT, what’s proposed may reduce donations that benefit from tax incentives by nearly $100 billion.

Gulp.

Donation Motivators

Currently, only about 30 percent of people itemize their deductions. So while 67 percent of households donate to charities, an equal number are not itemizing their taxes and, therefore, don’t get the actual benefit of the tax deduction. While we don’t know the overlap between these two groups, it’s safe to say that although the tax deduction may be a perceived benefit, it’s not the primary motivator for giving (at least not for those giving amounts less than $100).

In fact, according to an Indiana University Lilly Family School of Philanthropy study, people’s main motivations for giving were to make a difference (73.5 percent) and for personal satisfaction (73.1 percent). Receiving a tax benefit came way down in 11th place in the list of possible reasons, cited by just 34.4 percent of respondents.

Of course, people say the tax deduction doesn’t matter—but if it weren’t offered, would people still give?

More than 80 percent of itemizers reported making charitable donations, compared with 44 percent of non-itemizers. So the tax deductibility is likely very important with wealthy taxpayers.

And there’s no disputing the fact that 40 percent of all individual charitable gifts are given in December; 12 to 15 percent in the last three days of the year!

According to Catholic University Law Professor Roger Colinvaux, “one of the points of the [charitable] deduction is to foster altruism, to foster pluralism, to foster civic society.” So, there’s a psychological benefit to thinking you’ll get the deduction even if you don’t actually use it.

But an even larger influencer to giving is the health of the economy. Charitable donations closely follow the rise and fall of GDP. “The larger economy plays a more important role in changes in giving than do tax rate changes,” according to Lilly Family School of Philanthropy.

Where Do We Go From Here?

Now, I’m not suggesting you don’t mention the tax deduction. It is likely a contributing factor to giving, but it shouldn’t be the focus of your appeals. Talk about:

• Your mission and what an individual’s gifts will do
• How they are making a difference in the lives of others
• How giving feels good
• Emphasize a personal connection if one is present

The tax deduction is just another reason in a long list of motives. Don’t lose focus on the ultimate reason why people are supporting your organization—to help others, not themselves.