As tax season cranks up, nonprofits across the region are assessing the impact on donor giving of the federal tax overhaul that took effect at the end of 2017.
Observers worried the overhaul would discourage charitable giving, since fewer people would be able to deduct donations under the law, known as the Tax Cuts and Jobs Act.
And nationwide indicators report charitable giving is down overall, according to the Association of Fundraising Professionals Fundraising Effectiveness Project website.
But nonprofits in eastern and Central Pennsylvania do not see the same impact, at least not yet. And they remain cautiously optimistic about giving for 2018 and beyond.
How many potential individuals does the new tax law impact and what could it mean to the charities individuals support?
“We’re seeing the elimination [of itemizing] from 30 million down to 5 million taxpayers – that means 87 percent who could deduct will no longer be able to,” said Lorie Reinert, executive director of the Chamber Foundation of Greater Lehigh Valley Chamber of Commerce.
By the numbers:
- Married couples enjoy a new $24,000 standard deduction, while it increased to $12,000 for singles.
- The increase aims to streamline the filing process by taking away the itemizing options for many earners who won’t exceed the threshold required to itemize.
Thomas Brown, CFO of Bethlehem-based Valley Youth House, said he expects individual support to be down but said corporate support continued to remain strong.
“From an individual philanthropy perspective, Valley Youth House most likely will see the real impact this coming year after people have been through the first income tax filing under the new law in early 2019,” he said.
Dani Beam of Beam Consulting in Lancaster said an informal poll of clients in Carlisle, Harrisburg, Lancaster, and York doesn’t bear out national trends. She said nonprofit organizations there had not seen significant decreases in giving.
“But one client I work with said while there were more donors this year, long-time donors had given less” than in previous years, she said. “They were able to attract new donors, so those numbers aren’t lower, but the giving amounts for established donors [appears] to be less.”
The standard income tax deduction increased to $24,000 for a married couple filing jointly, effectively eliminating their need to itemize taxes, which would allow deductions for charitable giving to be taken off the top.
“The concern was if someone cannot directly see a deduction for their contribution, they may then lower their contributions,” said Andrew Kahn, a shareholder of Concannon Miller & Co. PC, an accounting firm in Hanover Township, Northampton County.
A new approach
Weather the new tax laws by shifting donors’ perspective.
Dani Beam of Beam Consulting in Lancaster said she advises nonprofits to think about showing donors where their money goes – or providing tangible results they can see.
“When donors see where their money goes and the impact it has, they’re more inclined to continue giving,” she said.
- Don’t panic – first and foremost.
- Remember donors have needs, too. “Talk to your donors, have conversations. Ask them how they’re feeling and what you can do to help the partnership evolve,” Beam said.
- Look beyond budgets and funding needs. “Consider the other side” and the donor’s perspective on giving and supporting your organization. Why are they giving, and what does it means for them?
The Very Reverend Tony Pompa, dean and rector of the Cathedral Church of the Nativity in Bethlehem, said while the tax change isn’t expected to impact the church’s programs negatively, “only time will really tell… [as] folks’ primary motivation for giving is not a tax break but their faithfulness,” Pompa said.
He noted many generous givers appreciated the previous law’s tax break and were savvy about how that benefit was used.
Still, area tax pros agreed most people don’t give to get a tax deduction.
“I think that’s one thing in a charity’s favor. If the mission is strong and people believe in it, then people will continue to give,” said Kahn, adding that many nonprofits received additional gifts in 2017, ahead of the tax law change.
He said those who previously itemized their deductions but would no longer be able to do so may have opted to give all at once in 2017 to take advantage of the tax deduction.
Outside the box
Kahn said another way to support charities and nonprofit organizations was to set up a donor-advised fund, or DAF.
A DAF allows an individual donor to make a charitable deduction and receive an immediate deduction, while giving out “grants” to a charity from the fund over time.
Kahn said a taxpayer could set up a $50,000 fund, for example, take the full tax deduction in the year the fund was established and give out $10,000 per year over the next five years.
Essentially the donor has “bunched” the deductibility of the donation and still donated to charities, Kahn said.
“They can give the same amounts they wanted to give, but still retain a large chunk of the tax benefit,” Kahn said.
Not all cash
Many people donate time and talent, as well as treasure, to a charitable cause because it resonates with their values or they believe in a particular mission and want to support it, according to Brad Griswold, managing partner at Corbenic Partners, a wealth management firm in Hanover Township, Northampton County.
Indeed, other avenues to support charities are becoming more popular.
Stocks, artwork or other types of planned giving, which could include appreciated securities, stock shares or a charitable disbursement from an individual retirement account could go directly to a charity, said Jeffrey Berdahl, a shareholder and partner of RLB Accountants in Allentown.
“People might be looking at other vehicles for giving, other than cash,” Berdahl said.
But he noted that since tax season is only beginning, it is “too soon to tell” if giving had changed over previous years.
Berdahl said for those paying less in taxes – meaning more money in their pockets – “may give more money to charity.”
“When the new law was promoted we were told 88 percent of taxpayers would be paying less in tax under the new law over the old law,” Berdahl said.