Nonprofits weigh impact of tax law

Jan 8, 2018 by and

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Some nonprofit organizations worry the tax bill signed into law by President Trump Dec. 21 will result in fewer donations.

Charitable giving remains tax deductible, but a doubling of the standard deduction means many middle-class donors won’t have enough deductible expenses to itemize, erasing one incentive to give.

“I like to call [a tax deduction] the icing on the cake,” said Bill Hartman, Everence vice president for organization and congregation services. “We give according to theology or calling. The tax system has an additional benefit. Now with the standard deduction being raised, there isn’t [as likely to be] that direct tie that this gift will give me an extra deduction.”

The new tax law doubles the standard deduction to $12,000 for an individual and $24,000 for a married couple.

The Associated Press reported economists predict fewer donations to U.S. charities in the coming year. Patrick Rooney, a professor of economics and director of the Lilly Family School of Philanthropy at Indiana University, expects donations to drop by around $14 billion next year, roughly 5 percent.

“I think it’s going to have an effect,” said Mennonite Central Committee U.S. director Ron Byler. “The extent of the effect we don’t know yet, but this is not going to be good news for Mennonite and Christian organizations.”

As the new tax plan’s potential came into focus in late 2017, nonprofit associations of which MCC is a member began sounding the alarm of a higher standard deduction’s implications.

“MCC has a higher than normal level of middle-income donors,” Byler said. “We depend on smaller contributions more than many organizations our size, which would tend to say our contributors don’t have as high of incomes.”

Giving for many reasons

Faith-based organizations and churches probably have an advantage over secular nonprofits.

“I’ve been in the stewardship business for 20 years,” said Mennonite Brethren Foundation President Jon Wiebe. “I think people are giving mostly out of a missional mindset, rather than a tax benefit. But of course we want to leverage our tax benefit as well.”

Wiebe said the impact on donations could be rather small, since less than a quarter of taxpayers itemize.

“We could also make a case that if people have more money in their pocket because of less taxes — which is also part of the bill — they could also be more generous,” he said.

Still, Hartman said it is difficult to predict the outcome.

“We expect that Mennonites and Anabaptists won’t be as impacted,” he said. “We sure like to think and hope and desire that that’s the case.

“If anything, it gives us reason to be more proactive about why we give and the basis that it’s not just for the tax deduction.”

Everence is available to give congregations advice about the many ways charitable giving can happen.

“We encourage them to be proactive about their culture and raising the level of generosity, based on the recognition that they have to tell their story and create that culture,” Hartman said. “I think we’ll see that more in congregations and nonprofits; to be more out there telling their story.”

Year-end boost?

It’s too soon to tell, but some nonprofits may have received a boost in year-end giving. Some experts advocated “bunching” 2018 giving into 2017, to be able to deduct two years of donations this spring. Those donors would then anticipate not giving in 2018.

Wiebe said he knew of only one person in the past two decades who had used the practice, but it may be catching on.

“There were a handful of folks who called us at year end and opened donor-advised funds with next year’s check for charitable giving, and they can itemize that in 2017,” he said. “I don’t know if they’ll continue to do that.”

Hartman said Everence didn’t yet have a picture of everything people did to close out 2017.

“We’re very interested in churches and their impact on cash flow,” he said. “And we’re aware of people putting money into their donor-advised fund with the thinking I may not be able to do contributions in 2018 to rise to the [standard deduction] limit.”

Besides budgeting for a range of 2018 giving possibilities, MCC is working to restore charitable deductions for as many taxpayers as possible.

“We don’t have the ability by ourself to affect policy change, but we are part of associations . . . advocating for a different, more nonprofit-friendly system. And I think we’ll continue to do that,” Byler said. “It’s difficult for me to think this is going to stick. But it is law.”

Other ways to get a tax deduction

Everence vice president for organization and congregation services Bill Hartman says there is more than one way to get a tax break for charitable contributions.

For people older than 70 and a half, funds rolled directly from an individual retirement account to a charity are not taxed.

“I think we’ll see more of that for people over 70 and a half,” he said.

Agriculture commodities — crops, livestock, milk and the like — can be gifted directly to charities instead of being counted as taxable income.

Appreciated assets from stock gains can also be donated. Hartman said there is no tax on capital gains if they are given to a charity.

“We’re confident we’ll see more of these alternative giving strategies for people are impacted by the deduction,” he said.

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