Sonya Murphy, like other nonprofit executives in Arkansas, is anxiously waiting for Dec. 31.
Murphy, CEO of Camp Aldersgate, will know by then if changes to the federal tax code had any impact on charitable giving to the nonprofit.
As a result of those tax changes, donations to charities are expected to fall by $13.1 billion annually in the United States, according to a May 2017 study by the Lilly Family School of Philanthropy at Indiana University.
The Tax Cuts & Jobs Act of 2017, which was approved by Congress and signed by President Donald Trump in December, doubled the standard deduction for married couples filing a joint tax return from $12,000 to $24,000, which will result in fewer people itemizing. “That’s huge and disastrous for charities,” said Martin Shenkman, a lawyer in New York whose practice area includes charitable giving and estate planning issues.
But there are a number of unknowns about the impact of the tax cuts, he said.
Murphy said that no one has reported to her that the higher standard deduction will affect giving at Camp Aldersgate, which has a $1.2 million annual budget. It serves seniors and children with special needs in a camp setting. She said the camp will know more after the fourth quarter, when most donors make gifts.
At the Arkansas Arts Center, Interim Director Laine Harber also said the tax changes haven’t affected donations so far. “This is the first year of it, so I don’t know if that will change after people go through one year of filing their taxes,” he said.
Most of the gifts to the nonprofit AAC, which has an annual budget of about $7 million, come from memberships that are just under $1,000 a year. Those donors may or may not itemize, he said.
“But as far as our major supporters, … we’re not seeing anything fall off there,” Harber said. “To my knowledge, we haven’t had a single donor tell us that this was going to impact their giving.”
Christina Littlejohn, CEO of the Arkansas Symphony Orchestra, also said she won’t know until Jan. 1 if the tax policy change had an impact. “I’m still hopeful that it’s not going to,” she said.
Most people don’t give to charities to get tax breaks, Shenkman said, but they help. “It encouraged people to give more,” he said. “But if you gave $1 to charity and got a 50 percent deduction, you’re still out 50 cents.”
He said altruistic, religious or other reasons fuel giving. Nevertheless, “I think a lot of people that have good motives and want to do good are going to feel the financial pinch of that” tax law.
The Largest Nonprofit Organizations in Arkansas, ranked by total assets. Available in either PDF or spreadsheet formats.
The tax code overhaul cuts taxes by an estimated $1.46 trillion over 10 years. Those cuts could result in people having more money after taxes, said Patrick Rooney, the executive associate dean for academic programs at the Indiana University philanthropy school. Those donors might give more of those after-tax dollars to charity, he said. Still, the school estimates that the doubling of the standard deduction, even with the lower taxes, will reduce charitable giving by about 4.5 percent. “The lowering of the tax rate and the doubling of the standard deduction practically raises the price of giving substantially,” Rooney said.
Little Rock tax lawyer Matthew C. Boch said he expects that most of the larger donors in Arkansas won’t take the standard deduction. “I’d expect that most big donors are really not that fixed on it,” said Boch, of the Dover Dixon Horne firm. A couple close to hitting the $24,000 standard deduction threshold might piece together donations to be able to itemize, he said. They also could alternate between big donation years and ones in which they take the standard deduction, he said.
Some 30 million Americans itemized last year, and that number could fall to 5 million with the changes.
Boch said the rise in the standard deduction isn’t going to alter his charitable giving plans. “I’m planning on taking the standard deduction, but I’m also giving as much to charity as I was before.”
Tax Tips for Donating
Martin Shenkman, an attorney in New York, says nonprofits could tout other ways for donors to give and still get tax benefits.
► People over 70 years and six months can have a donation sent directly from their IRA account to nonprofits. The amount will count toward the donor’s minimum distribution, and it’s excluded from the donor’s gross income. “And the equivalent of that is a dollar-for-dollar tax deduction regardless of the new standard deduction,” Shenkman said.
► Donors could have a will bequest paid while they’re alive, resulting in the donor receiving a tax benefit. The tax law resulted in the estate exemption almost doubling to $22 million for couples. “It’s not a big deal to do. The charity just gives you a letter saying we accept this check as an advancement under the bequest,” he said.
► A donor could use a non-grantor trust, one that pays its own income tax, to make donations. If a donor puts $100,000 in the trust and it earns 5 percent annually, that $5,000 could go to a charity, Shenkman said. “The reason that works is trusts, unlike flesh and blood people, don’t have a standard deduction, so they get a dollar-for-dollar deduction for charitable contributions.” He also said that a couple still could receive the standard deduction on personal tax returns.
Charities also need to “emphasize all the personal benefits of doing good and giving to charity,” he said, regardless of tax breaks.
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