Would you donate to a charity even if you knew you couldn’t claim it on your taxes?
That question is gaining momentum in the nonprofit sector, due to The Tax Cuts and Jobs Act passed by Congress last year.
Under the new tax law, there’s less incentive for charitable giving. The concern takes center stage this time of year because donations tend to spike each holiday season.
Capt. Tim Sheehan, state coordinator for The Salvation Army, said his organization receives government support, but their primary income comes from individual donations.
Sheehan is confident people will continue to donate, because support continued, even during the recession 10 years ago.
At that time, some people gave a little extra when others couldn’t, in order to help provide assistance to families. “I think the same thing will kind of be true in this setting,” Sheehan said.
Sheehan said the community values services such as shelter, feeding the hungry and helping disaster survivors.
“They believe in our mission to help people,” he said. “We have an amazing brand that’s 153 years old. And it’s part of the fabric of charitable organizations around the world.”
Here’s the concern
The tax plan has doubled the standard deduction people use when filing their taxes, to $12,000 for individuals and $24,000 for married couples.
Nonprofits are concerned because many taxpayers who used to itemize deductions won’t find it necessary. Itemizing to include charitable donations has long been a way to decrease tax liability. Now the amount of their usual deductions, plus charitable giving, may not reach to the new standard deduction threshold.
Estimates predict this will drop households itemizing deductions from 46 million to 19 million, a 59-percent decrease in itemizers, according to 2018 research by Fidelity Charitable.
Red Cross ‘disappointed’
The American Red Cross isn’t happy with the Tax Cuts and Jobs Act.
“The American Red Cross is disappointed that the new tax law did not contain a universal charitable deduction available to all taxpayers, whether they itemize or not,” according to a statement from Anthony Tornetta, Red Cross senior manager/media relations.
“With the increase in the standard deduction, we are concerned that fewer taxpayers will be taking advantage of the charitable deduction,” Tornetta said. “Even though we don’t have any estimates of its effect at this time, this is certainly a focus for us this year.”
Effect on the arts
The Grand, the state’s largest arts organization, isn’t expected to take much of a hit, since individual donations are their smallest funding stream, said executive director Mark Fields.
The Grand operates three Wilmington venues: Copeland Hall, The Baby Grand and The Playhouse on Rodney Square.
“That’s part of where of our government and corporate support comes from, because they see The Grand as an economic driver,” he said.
The Grand’s funding includes a generous amount from the Delaware Division of the Arts, an arm of state government; several endowment funds; and their annual gala, which nets over $175,000.
“The Grand definitely benefits from having been around for a long time and having established key relationships, not just with individuals, but with foundations and corporations,” Fields said.
The Grand hasn’t had to rely heavily on individual donations due to Delaware’s history of strong cultural infrastructure where nonprofits have generally been supported more by corporations, foundations and government, as opposed to individual donors, he said.
Fields said he hasn’t seen a decline in giving so far this year. But he expects there won’t be a big effect because he communicates often with his donors and meets with them on a regular basis, whether he is asking them for money or not.
At the same time, Fields isn’t taking the situation lightly.
“It is a legitimate concern,” he said. “Our sense is that most of our donors donate not because of the tax benefits that they get, but because of the good they believe The Grand does in the community. So we’re not certain we’re going to see a huge effect from this.”
This year is a freebie
Many nonprofit leaders and experts say this year might not be a good test of the tax law’s effect, since many believe the average American isn’t aware of the implications and will give as they always did. It won’t be until they file their 2018 taxes early next year that they find the law has changed.
Karen Speakman, executive director for National Council on Agriculture Life & Labor Research Fund, thinks her organization will receive its typical amount of support from donors this year, but she wonders what will happen next year if some donors realize they won’t get a tax break.
NCALL is a statewide nonprofit specializing in offering affordable housing development, education and lending.
Individual donations are the smallest slice of the pie, accounting for about 1 percent, or $14,000. But every dollar counts, Speakman said.
Time will tell
Sheila Bravo, president and chief executive officer of the Delaware Alliance for Nonprofit Advancement, said it may take her organization two or three years until it can get a sense of the implications from tax law changes.
“The way in which we as an industry capture the data for charitable giving was by looking at IRS tax forms,” she said. “So if people are not now itemizing, there’s no way to really use that methodology to calculate charitable giving.”
Bravo said their best plan currently to get a read on this is to issue a survey to their members before the end of this year, asking nonprofits if they’ve seen a decline in individual donations.
Cynthia Pritchard, president and chief executive officer for Philanthropy Delaware, said even if there’s no financial benefit, individuals should still donate to charities because it helps to strengthen communities.
Devina Parker agrees. She recently made a donation to The Salvation Army. And while she’s somewhat knowledgeable about the tax law, she said the possibility of not getting a tax break won’t stop her from giving.
“I think that there are always going to be people that give,” the Dover resident said. “Then there are other people that don’t have it, but they want to give, and there are those who just can’t. Then there’s the Scrooges.”