December 15, 2017
By Ann Carrns
Even before congressional Republicans finalized their tax bill, charities were worried.
The final legislation roughly doubles the standard tax deduction, to $12,000 for individuals and $24,000 for couples. A higher standard deduction means fewer taxpayers will itemize their deductions on their tax returns, reducing the incentive to give to charities. Currently, only taxpayers who itemize — meaning, they detail gifts to charity and other spending on their returns — may deduct contributions.
“The nonprofit sector is alarmed,” said Michael Thatcher, chief executive of Charity Navigator, a charity rating website. The change in the standard deduction is “the biggest cause of concern,” he said.
Estimates of the impact from an increase in the standard deduction vary. According to the Tax Policy Center, more than 46 million filers would be expected to itemize in 2018 under current law, but that number would drop to under 20 million.
“For charities who serve families in need, the projected declines in giving will devastate our ability to provide food assistance,” said Diana Aviv, chief executive of Feeding America, a network of food banks.
For many charities, 2017 is shaping up to be a good one for fund-raising, as the economy hums along and the stock market booms. The United Way of Greater St. Louis, for instance, which serves Missouri and Illinois, expects top donors to contribute 6 percent more than what they gave in 2016, said Orvin Kimbrough, the group’s president and chief executive.
But the future is cloudy under the new tax regime. The group estimates a potential drop in taxpayer giving to charities of $169 million annually in Missouri and $431 million in Illinois, under the new tax law. “That’s a lot of money,” Mr. Kimbrough said. “This is about people’s lives.”
One short-term bright spot: Donors, uncertain about whether they can deduct a contribution next year, may be more generous this year, giving nonprofit groups a bump in 2017 fund-raising.
Some fund-raisers are asking donors to consider doing just that.
The Greater Milwaukee Foundation, which makes grants to support community and civic groups, sent an email to donors explicitly noting the effect of the tax overhaul. “If you are a taxpayer who itemizes,” the email said in part, “it probably makes sense to accelerate some charitable contributions into 2017 to get a larger income tax deduction this year.”
Ellen Gilligan, the foundation’s chief executive, said the federal tax legislation moved so quickly that many donors were unaware of its provisions and how it might affect their taxes. Many have been appreciative of the notice, she said, and some have accelerated their contributions to the foundation’s donor-advised funds. (Donor-advised funds allow people to make contributions and take a tax deduction, while designating a choice of gift recipient at a later date.)
Ms. Gilligan said the foundation has an endowment and doesn’t expect its grant programs to be significantly affected in 2018, but there is concern about the longer-term impact of the tax change. “Eliminating the tax incentive,” she said, “has the potential to have a very negative impact on charitable giving.”
United Way Worldwide, ranked the largest charity in 2017 by donations by Forbes, is recommending that its community-based affiliates contact important contributors to highlight the changes that are coming, said Steve Taylor, the charity’s vice president of public policy. United Way Worldwide provides leadership and support to its network of groups across the country. “We’ve been urging them to reach out to big donors and talk to them about tax reform,” he said. Typically, the local United Way chief executive or head fund-raiser has a personal relationship with important donors, he said, and will talk by phone. (“My donors,” said Mr. Kimbrough of the United Way of Greater St. Louis, “have my cellphone.”)
Some 26,000 to 28,000 major donors nationally give a total of about $500 million a year to United Way, in gifts of $10,000 or more, Mr. Taylor said. Some of those donors may be affected by the change in the standard deduction. Donors give for altruistic reasons as well as tax breaks, Mr. Taylor said, but the increase in the standard deduction is expected to have an impact.
“They’ll still give,” Mr. Taylor said. “But they’re going to give less.”
(Millions of smaller donors, who make pledges to the United Way through workplace contribution programs, average gifts of $150 a year. They have already made their elections for next year’s donations.)
Major donors are often concerned about stability, Mr. Kimbrough said. So they may structure gifts to donate more this year and receive a larger deduction, but space out the funds for spending over several years to help smooth out any budget gaps.
Elie Hassenfeld, co-founder and executive director of GiveWell, a nonprofit organization that recommends a handful of charities, said nonprofits are in a “zone of uncertainty.” But the group has frequent one-on-one conversations with its donors, he said, and is raising the issue of tax reform with them. The message? “You should be thinking about the possibility that your desire to deduct is going change from this year into the future,” he said.
Eileen Heisman, chief executive of the National Philanthropic Trust, which oversees donor-advised funds, said the trust is seeing some larger gifts this season. “People would rather gift when they know what their tax benefit is going to be,” she said.
“One thing is very consistent,” she said. “When there’s a threat, donors will front load, and we’re expecting that this year.”
Some donors may be waiting to see the final bill approved by President Trump before making a decision about the size of their donations. So the usual burst of last-minute giving at the end of the year may be even more intense this year, said Pam Norley, president of Fidelity Charitable, a big donor-advised fund.
But not all donors have the wherewithal to double their contributions on short notice, said Michael Kenyon, chief executive of the National Association of Charitable Gift Planners. “A lot of people don’t have the opportunity to give more now,” he said. That probably means, he said, that nonprofit groups are unlikely to recoup enough in donations this year to make up for what they will lose next year and beyond.
“The honest answer is we don’t know how many people who donate to Direct Relief are motivated by deductibility,” said Thomas Tighe, chief executive of the group, which specializes in disaster relief. “It’s some cause for concern, but we don’t feel there’s anything we can do about it other than wait and see and hope people still see value in making a contribution.”