How Have Recent Tax Changes Affected Local Nonprofits?
Would donors skip their customary year-end gifts, knowing there would be no tax advantage? Now that we’re into 2019, how did the changes affect local nonprofits?
Because the new tax law nearly doubles the standard deduction and eliminates or caps other deductions, the number of taxpayers eligible to deduct charitable donations has been drastically reduced. Nonprofit organizations worried that would dramatically reduce charitable giving.
Some predictions were dire. The Ann Arbor Community Foundation projected the number of taxpayers who itemized could drop from one in three to one in seven. The Council on Foundations estimated the new rules would decrease charitable giving by $16 to $24 billion nationwide.
Topeka Community Foundation (TCF) President Marsha Pope says regional community foundation presidents reported that “things felt a little quieter” at the end of the year, but Pope found no drop-off in giving to TCF from 2017 to 2018. She speculates that many people may not have known about the changes.
Pope cites an uptick in interest in Donor Advised Funds (DAFs) late last year. Contributing to a DAF allows you to pool your donations in one pot and deduct the entire contribution in the year you make it. Nationally, DAF grants increased nearly 20% from 2016 to 2017 according to the 2018 Philanthropic Trust DAF Report, a faster rate of growth than almost every year prior.
Late last year, Mize Houser CPA Duane Bond wanted to make sure his clients were aware of the new tax law’s ramifications. A couple filing jointly, deducting the new maximum $10,000 in taxes and giving $14,000 to charity, may as well take the standard deduction - now $24,000 - because there’s no point in itemizing, no tax benefit for the charitable gift. Bond’s advice: Avoid losing the deduction every other year by “bunching” charitable contributions, making two years’ worth of donations in a single year and itemizing, then reverting to the standard deduction the following year.
Bunching can have serious ramifications for nonprofits that rely on annual contributions and often have little money in reserve. Bond thinks it will take time for the tax law changes to have a significant impact on nonprofits. “It’s hard to get taxpayers to pay close attention to this,” he says, “particularly because even with the standard deduction, many will still be paying less than they did last year” due to other changes in tax law. Marsha Pope concludes, “High wealth people give the most; they will continue to itemize. The impact downstream is going to be greater.”
Have local nonprofits felt that impact? Keller Consulting conducted a survey of Topeka Association of Fundraising Professionals (AFP) members. Results indicate the effect of the tax law changes was not as profound as many feared, at least in this first year. Twenty-nine percent of respondents saw a decrease in year-end giving. Of those, a third reported a decrease of 5% or more. One respondent characterized the decrease in year-end giving as “significant,” but attributed it to other factors. Sixty-five percent of those surveyed saw no drop and one reported an increase, likely due to a few donors who “bundled,” increasing their gifts to maximize tax advantages.
These local findings reinforce what national research shows: Most people give for altruistic reasons rather than tax advantage. The 2018 U.S. Trust Study of High Net Worth Philanthropy finds just 17% of wealthy donors are motivated to give by tax benefits. They give because they what to make a difference. They want to connect with a like-minded community. They want to feel the personal satisfaction and joy that comes from giving. And that’s good news for Topeka.
Mary Loftus is Vice President of Keller Consulting, LLC, a non-profit fundraising consulting firm with clients throughout the Midwest. Mary has more than 20 years of fundraising experience. She served as Development Director at Topeka Collegiate School and before that, as News Director and Anchor at WIBW 13 News.
