The 2018 tax law is going to teach us to rethink everything.
I am involved in an informal dog rescue group in Baja California. Today the question came up as to whether we should get non-profit status.
My response was, “Why?”. After the new 2018 Tax Act, over 80% of Americans will no longer itemize. One of the key reasons to get the non-profit status is so that donors can deduct their contributions. But now that so many Americans won’t be itemizing, is it worth it?
The cost, just in fees, can be close to $2,000 to set a 501 (c) (3) and that’s before you pay for the work to set up the non-profit corporation and make the federal application. Fees continue, year after year, to maintain and run the charity. It’s a complicated process.
Granted, wealthy donors will still be able to often make use of the tax benefit. However, the best strategy for them is often to set up their own charitable foundation. They make tax deductible contributions to their foundation and the foundation can then make payments to other charities, causes or even make individual donations that further the projects they care about.
They will have more control and keep the deduction too.
All of this means a tax savings for the small former charities. It’s interesting when I posted this as a strategy on my Facebook group, Diane Kennedy’s US Tax Group, how many people thought this all was a bad idea. I’m not so sure it’s a bad thing for small charities. At least in my experience, people donate because they care about a cause, not because they are looking for a tax benefit. At least that’s the case with donations that are a few hundred dollars. People with larger donations, and hence, almost always larger incomes, may want to now consider another idea.
As we talked about, only the wealthiest donors will get the tax benefit moving forward. And for them, the best strategy is often setting up their own charitable foundation They can then donate as they wish to various charities and take the deduction without worrying about it.
Things are changing!