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Charitable Contribution Tax Deductions After Tax Reform

Recently, a nonprofit CFO forwarded a note from his development team that said corporate donors are cutting sponsorships due to Tax Reform. Did Tax Reform put new limitations on charitable contribution deductions?

There are no direct changes for corporate charitable contribution deductions. Indirectly, Tax Reform may reduce corporate contributions to charities if they are looking to maximize their after-tax cashflow. Corporations on their federal return will only save 21% on their donation compared to 15-35% before due to the new flat tax rate. Corporations who were in the 15% tax bracket last year are now saving 21% on their charity deductions and may allocate a little more to charity.

Tax Reform did make 2 changes to charitable donations (one favorable, one unfavorable).

One change actually helps individuals as they can take charity deductions up to 60% of their adjusted gross income (rather than 50%). In addition, high income donors no longer have itemized deduction phase-outs which may have lowered their charity deductions in the past.

However, tax reform will probably lower charity donations as the higher standard deduction will mean 80% less Americans will be able to claim itemized deductions. Some donors may not donate anymore if they can't itemize deductions.

The unfavorable change: For both corporate & individual donors, Tax Reform repealed a rule that allowed taxpayers to deduct 80% of a contribution made for the right to purchase tickets for college and university athletic events.

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Richard Pon CPA, CFP