By Lonnie Wilkey
Editor, Baptist and Reflector
FRANKLIN — In December members of Congress passed what may be the most significant changes in federal tax laws in more than three decades.
The law is so new, however, that specific impact on churches and ministers is still unknown, according to multiple sources.
Chris Kelly, executive vice president and general counsel for the Tennessee Baptist Foundation, has been monitoring the tax laws, especially as they relate to charitable giving.
An increase in the standard deduction of $24,000 for married couples in 2018 from $12,400 in 2017 is the most significant change impacting most taxpayers, Kelly said.
Chris Kelly
A potential drawback to the increased standard deduction is that many people will no longer be able to itemize their deductions such as charitable giving, he noted. Deductions would have to total more than the $24,000 standard deduction to be itemized, he explained.
Kelly said current statistics indicate that about 30 percent of Americans itemize their taxes. “Some experts are now estimating that number will drop to as low as 5 percent with the higher standard deduction,” Kelly said.
The opposite side of the coin, however, is most people will have more disposable income due to the tax break. With more funds at their disposal, the belief is that more people will be inclined to give to charities, irrespective of their ability to take a tax deduction for it, he observed.
Though 70 percent of people do not itemize their taxes, it would be unrealistic to think that they do not contribute to charitable causes, Kelly said. There will continue to be people who give to churches who wish to remain anonymous with their gifts, or at least do not want the tax credit.
The question for churches and other non-profits, Kelly said, is, “Will people be less inclined to give since they probably cannot deduct their charitable deductions?”
Kelly says that may be a reality for some non-profit organizations, but feels those who contribute to churches are more likely to continue. They give because of a spiritual connection, not because of a tax deduction, he affirmed.
“As believers, the ability to deduct our charitable contributions is secondary to our desire to support kingdom work,” he observed. “Believers still want to be a part of the work of the kingdom on earth.”
Kelly cautioned that the new tax law could also potentially affect larger institutions that actively raise funds and may see many larger one-time gifts, including TBMB partner institutions such as Union University, Carson-Newman University, Tennessee Baptist Children’s Homes, Harrison-Chilhowee Baptist Academy, and Tennessee Baptist Adult Homes.
It probably won’t affect smaller gifts that donors give at year’s end, Kelly said. It could affect substantially larger gifts, he continued. For instance, a couple who wanted to give $10,000 might choose to hold the gift for a year if it did not bump them over the standard deduction for the year, Kelly said, in order to aggregate it with other gifts in another tax year in order to be able to itemize.
“It ultimately depends on what the donor wants to accomplish,” Kelly said. He further noted that two significant sources of charitable giving — donations of appreciated assets and the Qualified Charitable Deduction from IRAs — are unaffected by the new laws. “These strategies have been providing and continue to provide significant opportunities for gifts to churches and other charities,” he said.
Most experts in church tax law agree with Kelly’s assessment.
An article on church finances and the new tax law, published by Church Finance Today on Jan. 3, noted “there are no specific provisions in the new legislation that targets pastors or church workers. So any benefits that a pastor or other church worker will experience will be the same benefits that other taxpayers experience.”
One expert in the article said, “I wouldn’t characterize any aspect of the law as benefiting churches or other nonprofits particularly. The law is directed at helping individual taxpayers and businesses. Despite predictions that the higher standard deduction for individuals and lower rates will result in decreased charitable contributions, churches and other nonprofits can still hope that the economic impact of the tax reductions, together with economic growth, will spur an increase in giving.”
