2018 Tax Reform: Doom & Gloom?

I don’t think so.

Whenever there has been a change in the U.S. tax laws, I always consult with my accountant for a better understanding.  Arthur, who also happens to be my brother-in-law, always has the ability to explain such impact in understandable terms.

So, at last month’s family Hanukkah gathering, I posed the question to Arthur, and listened, with many other family members, to his explanation.

Arthur explained the increase in the estate tax exemption from $5 million to $10 million. For many years, there has been an industry created through various trust instruments – by accountants, lawyers, and financial advisors – for very wealthy people to avoid paying the estate tax. Now, at least some of those people might not need to seek such help. I asked Arthur about SALT, state and local taxes and the new $10,000 limit.

“Elections have consequences”, Arthur said.

There has been much written how the 2018 Tax Reform might impact charitable giving. In my mind, the jury is still out on this. We don’t really know. In terms of our synagogues, and really all houses of worship, I don’t think the primary reason people are fulfilling their dues – annual commitment obligations has much to do with tax deductibility. Belonging to a synagogue does foster in us, hopefully, a greater sense of community as well as responsibility through dues/annual commitments. I would like to think that people fulfill such financial obligations due to a religious belief, or for some even a higher belief, that being a part of a community has meaning.

It is for this reason that I believe that synagogues, and all houses of worship, may see minimal impact in terms of decreased charitable support.

Here are other reasons as to why there might not be anything to worry about:

  • Beginning in February, many congregants will see an increase in their take home pay.
  • People with children attending private school will now be able to utilize $10,000 for tuition from their 529 College Fund.
  • And of course congregants who are high earners will have a lot more disposable income.

More ominous articles are predicting that due to the SALT maximum deduction of $10,000, not as many people will itemize and simply take the standard deduction. And that this would affect charitable giving. But today, there is even a movement in some local townships in New Jersey for people to donate to the local municipality the same amount they would pay for property taxes. And this may catch on in other communities.

Maybe congregants approached for a significant gift to a capital or endowment campaign might have some hesitation. Such reasons might be more psychological than due to tax reform. I have read numerous studies regarding the reasons why people make major gifts. “Donative Intent” is always chosen more frequently than “tax deductibility” as a reason for such gifts.

But tax reform is new to all of us – not yet a month old –  and the jury is still out. Keep making the case as to the synagogue’s impact to touch people Jewishly and help them feel a part of a community. Fundraising success will continue and there won’t be any “doom and gloom”.

2 Comments on “2018 Tax Reform: Doom & Gloom?

  1. I disagree, I think we are going to see negative consequences especially among those who are have state and local taxes in excess of the $10,000 limitation. Currently 30% of taxpayers itemize their deductions and I would expect that of the members who have kids and belong to a synagogue the figure is closer to 80%. The estimation for the House Bill was that only 3% of taxpayers would now itemize. Granted that since medical is now an allowable deduction the percentage will be slightly higher that the original projection.

    I think the fallout from the single taxpayers will be less then married taxpayers since if they are capped at the $10,000 of state and local taxes they only lose $2,000 of their charitable contributions if they have no mortgage.

    Married couples without mortgages will be the challenge because they won’t get a dime of deduction for their donations until they have given $14,000 in donations.

    To address your three points not to worry and why I think we should worry. The increase in take home pay will not really be an increase in take home pay because of the limitation of state and local taxes. Taxpayers will need to adjust their withholding. People with children will get some additional benefits that may offset this. I think people are going to wait until they really know what their tax burden is.

    My clients that have significant money in their children’s 529 plans either have lots of money and are comfortable paying day school tuition out of pocket or the grandparents have funded the 529 plan. Tuition is not deductible and just do not see people taking money out of a plan set up for their children’s university education so they can continue making charitable contributions.

    My higher earner clients in California and New York are not going to have less disposable income when state and local taxes and figured in. The rules for pass through income are still unclear and nobody knows how much this will generate in actually savings to them.

    One of the things we should do now is start trying to educate our senior members that instead of taking an IRA distribution and making a contribution they avail themselves of making a portion (or all) of their IRA distribution directly to their synagogue which will save them taxes.

    We should also try to educate our members about donor advised funds because for many this will be very helpful in maximizing the tax savings they will receive for making charitable contributions.

    Overtime those of us that used to itemized and no longer itemize will get used to the fact that our donation is the right thing to do even if the government is not going to subsidize it by giving us a tax break.

    • David,

      Thanks for sharing your thoughts. One other point I was making was to emphasize the sacred and community aspects. Regardless as to whether financial support is tax deductible, I don’t think people will leave the synagogue because of tax reform.

      Time will tell, I guess. And I really appreciate people offering different viewpoints which was really my hope with my blog.



Leave a Reply to David M. Reff, CPA Cancel reply

Your email address will not be published.