• Melissa Walton-Jones

Finer Finance Fridays #15


THE NEW TAX REFORM LAW HAS SERIOUS IMPLICATIONS FOR NONPROFITS

For many of us, especially those who are members of nonprofit organizations, giving to a charity is part of our lives. If we are giving to a 501(c)3, like the Zeta National Educational Foundation or the Zeta Founders Endowed Scholarship Fund, and any other number of charitable organizations we partner with, it's an even bigger part of our lives. Many of us plan to make our tax-deductible donations before the end of the year, and this new tax law has me worried. It has many charities worried too. Here's why.

CHARITABLE DEDUCTIONS

As with anything, it's important to understand a bit of history in order to appreciate the change that has happened recently. The largest piece of tax reform since the Reagan administration is complete. In 1917, the U.S. government created an opportunity for Americans to take a tax deduction for donations to charitable organizations. It was pretty straightforward and had existed since that time. Under prior law, taxpayers could not deduct more than 50% of their adjusted gross income in charitable contributions. The new law increases this limit to 60%, which will help wealthy donors to give more each year. However, taxpayers may deduct charitable contributions only if they itemize their personal deductions instead of taking the standard deduction. A taxpayer should itemize only if his or her personal deductions, such as charitable contributions, mortgage interest, property tax, medical expenses, exceed the applicable standard deduction. A standard deduction is the amount the government automatically gives you to as a reduction to your total income which is used to calculate the amount of tax you owe for the year. This amount is different based on your filing status (single, married, head of household,etc.)

For 2017, the standard deduction was $6,350 for singles and $12,700 for marrieds filing jointly. The new tax bill roughly doubles these amounts to $12,000 for singles and $24,000 for marrieds filing jointly. The average charitable deduction was around $4,400 over the past few years, according to IRS data. The charitable deduction allows taxpayers to avoid paying federal income tax on the donation if they itemize their taxes. Nonprofits of all types now face a brand new giving landscape as fewer Americans will itemize their returns, resulting in them not being able to take advantage of their charitable contributions.

WHY DOES THIS MATTER?

This is a simple example of cause and effect. The standard deduction went up, fewer people will have the need to itemize. People will no longer be looking to write down the money they gave to a charity because now they will get that deduction automatically. So, they may decide not to give, they may decide to give less, or they may be more more selective about who they give to. This is why we should care. In my background research on this issue, I found that local organizations and community-based organizations receive a disproportionate amount of giving from middle-income donors. This is the group most heavily impacted by the new tax law, and the effects of the law on those people is unpredictable.

The Association of Fundraising Professionals, AFP, is anticipating a reduction in itemizers of about 30 million on account of the standard deduction increase. About 82 percent of individual giving comes from itemizers, per Giving USA estimates, equating to an annual loss in giving of between $12 billion and $20 billion. For those who receive grant money, or other program funding from partner organizations, this is what you really care about. Under this tax bill, this may mean less money for those in our communities who really need it. Even before congressional Republicans finalized their tax bill, charities were worried. For charities who provide relief for families in need, the projected decline in giving will devastate their and our ability to assist those in our communities in need. It will also impact the funds we receive from our donors and partners to assist with programming. While we don't know the real number of people who are driven to give because of the benefits of tax deductions, there should be some cause for concern. We can't do anything about the standard deduction, but we can do something about our efforts towards helping people still see value in making contributions towards our programming and that of our partners. There may be tight times ahead. The future is cloudy under the new administration and their tax regime. Those of us who are able to give, should still give. We also consider additional methods of funding for our programs. We must ensure that our donors connect to our messaging and that they have a clear understanding of the value we provide to the community. This should be consistent and reflected in all we do. Lastly and as always, remember to Keep it Finer!

References:

Washington Post

Nonprofit Standard: The Blog of the BDO

National Council of Nonprofits

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Soror Melissa Walton-Jones, Zeta Phi Beta Sorority, Inc.

2020 Candidate for Re-Election: International Tamias