Tax laws

Trump’s tax laws could explain the slowdown in year-end giving

The five-day period between Christmas and New Years is one of the busiest times for charitable giving. But under President Donald Trump’s new tax laws, nonprofits across the country could see a drop in year-end giving.

Some organizations in Charlotte may already be feeling the effects.

The local branch of the Salvation Army is counting on people to make contributions during the holiday season. As of Wednesday, online fundraising was tracking the same as in previous years, but mail-in donations were down nearly $120,000, according to Maj. Larry Broome, commanding officer of the Salvation Army of Greater Charlotte.

He said he hopes donors can make up the difference before the new year.

“It looks like our donations are going to go down a bit this year, unless there’s a big increase this week before the end of the year,” Broome said.

The Salvation Army wrote to Congress last year when tax code changes were being considered to encourage lawmakers not to implement the policy or revise it so it doesn’t harm charities, did he declare. Nonprofits across the country continue to advocate for a policy that allows all taxpayers — not just those who itemize deductions — to reap the benefits of donations, according to New York Times reports.

But it was signed by Trump in December 2017 and will affect how people file their 2018 tax returns.

The Tax Cuts and Jobs Act was the most comprehensive overhaul of tax law in 30 years. It increased the standard deduction for individuals from $6,350 to $12,000 and for married joint filers from $12,700 to $24,000. He also capped the state and local tax deduction at $10,000.

At the end of December, people generally have a clearer idea of ​​their tax situation and, if they are about to cross the standard deduction threshold, they may decide to give more to take advantage of the tax savings. But a higher standard deduction means fewer taxpayers will approach that threshold, and so can pass on year-end donations.

“We are a faith-based organization which means we keep the faith that people will make it through and we will find a way to make sure we continue to serve those in need and not turn anyone away,” said Broome. noted.

A study by Indiana University’s Lilly Family School of Philanthropy estimates that due to changes to the tax code, households will give $13.1 billion less per year, a drop of 4, 6% compared to recent years.

David Heinen, vice president for public policy and advocacy at the North Carolina Center for Nonprofits, said statewide only 5% of taxpayers are expected to itemize their 2018 tax returns, compared to nearly a third those last years.

“That doesn’t mean they won’t continue giving, because the reality is that a lot of giving is motivated by non-tax reasons,” Heinen said.

CLT_Goodwill_donations_02
Cars drive to a Goodwill Donation drop-off stop at the Goodwill Ballentyne store on December 27. David T. Foster III [email protected]

A congressional report released earlier this year predicted that the number of filers itemizing deductions will drop from 46.5 million in 2017 to 18 million in 2018 due to new tax laws.

But that doesn’t mean nonprofits will see a falling mirror in donations, according to Duke law professor Richard Schmalbeck. Indeed, the taxpayers who will continue to itemize are generally higher-income filers who have larger deductions and contribute the majority of donations to nonprofit organizations.

And, he continued, the bill’s reduction in corporate and personal tax rates could mean people end up with extra savings at the end of the year that they want to donate.

“Donors who own corporate stock and other smaller business interests should feel somewhat enriched by the tax bill,” Schmalbeck said. “It can create opportunities for charities.”

Some taxpayers who have an interest in claiming the standard deduction may plan their charitable contributions so that they can still take advantage of tax incentives for donations. One strategy is to concentrate donations in one year so that itemized deductions exceed the standard deduction for that year’s tax return.

The changes to the tax code will expire in 2025 and revert to those in effect in 2017 unless Congress acts before then.

Heinen said charitable giving may actually increase overall in 2018 due to the influx of charitable contributions in the aftermath of Hurricane Florence.

But some charities may struggle to meet their year-end fundraising goals.

“People don’t really realize how powerful the tax deduction incentive is in terms of generating charitable contributions,” Schmalbeck said. “This is bad news or bad news for charities.”

This story was originally published December 28, 2018 3:55 p.m.