The recent tax reform package had implications across the economy, but some fear the legislation may have a negative impact on charitable giving to nonprofits.
Despite the scare, local nonprofit representatives remain optimistic their donors will continue to support their missions, despite the potential loss of a tax benefit.
The 2017 Tax Cuts and Job Act shrinks the number of households claiming itemized deductions for their gifts to nonprofits from about 37 million to about 16 million this year, based on estimates from the Tax Policy Center.
In essence, the new tax law reduces the marginal tax benefit of giving to charity by more than one quarter this year because of four big changes anticipated to discourage charitable giving. The measure lowers individual income tax rates, thus reducing value of tax deductions; it caps state/local tax deduction at $10,000 while increasing standard deductions (singles $12,000, couples $24,000), two moves expected to significantly reduce the number of itemizers.
And even as fewer itemized deductions are expected from taxpayer charitable giving, the individual income tax changes will reduce the average tax benefits from such giving from just over 20 percent to about 15 percent.
Informed estimates are that the changes in the law will result in a reduction of charitable giving in 2018 by up to 6 percent, or somewhere between $12 and $19 billion dollars, nationwide.
That’s a potentially lethal slash in the already tight budgets of many nonprofits that rely on that charitable largesse that the Tucson citizenry is known for.
Local CPA David Preston remains optimistic.
“I’ve not heard from any of my clients about plans to cut back on gifting this year,” he said. “Personally, I won’t be altering my gifting as a result of not being able to itemize deductions, and in talking with other area CPAs, their take is that their clients give to charities because they believe in the work they do, not the fact that donations might impact tax deductions.”
The possibility of a drop in donation dollars is already a discussion item at the Community Food Bank of Southern Arizona. They’re concerned that taxpayers who have itemized their deductions in the past may feel they have lost the opportunity to support their favorite charities in that way, said CEO Michael McDonald.
But McDonald is hopeful that supporters will still take advantage of the Arizona Charitable Tax Credit, which allows state taxpayers to donate up to $400 ($800 for a married couple filing jointly) to a Qualifying Charitable Organization like the Food Bank and get a dollar-for-dollar tax credit.
The underlying reason for their concern is a valid one: A drop in donations to the Food Bank would mean they might have to adjust their programs, including hunger relief programs.
“And that would be a difficult choice, as one in four children and one in five adults in Arizona are at risk of hunger,” McDonald said.
Another concerned non-profit has been helping pets and the people who love them since 1944, the Humane Society of Southern Arizona.
According to development director Randy Peterson, while they’re aware that changes in the tax law might give some people pause to consider year-end gifts, the Humane Society also knows that tax incentives aren’t the primary reason someone gives to their organization—they give because they believe in the mission and its track record of helping pets and people who love those animals.
“And while we will be closely monitoring year-end giving, we’re confident that most of our regular donors will continue to support our work,” Peterson said. “Along with that anticipation, we’re also hopeful new donors will find their way into our family of supporters, allowing us to plan for even more success in 2019.”
Similarly concerned while still optimistic is Tony Penn, President/CEO of the United Way of Southern Arizona. Like others in the nonprofit sector, Penn said they harbor some concerns because, according to Giving USA, the lion’s share of the more than $400 billion given last year to charities in the U.S. came from private donors, not corporations or foundations, but out of the pockets of hardworking individuals.
“Most of our donors don’t give because of any benefit from charitable deductions, they give out of compassion and a desire to make a difference and we believe the majority of those donors will continue to give to help make a difference in their community,” Penn said. “In fact, the only major change in charitable giving that caused a dip over the last 30 years took place during the 2008 financial crisis, so we trust people will continue to make donations despite any changes in the law.”
Lee Allen is a Tucson Local Media freelance reporter.