Even before congressional Republicans approved their tax bill, charities were worried.
The final legislation roughly doubles the standard tax deduction, to $12,000 for individuals and $24,000 for couples. A higher standard deduction means fewer taxpayers will itemize their deductions on their tax returns, reducing the incentive to give to charities. Currently, only taxpayers who itemize may deduct contributions.
“The nonprofit sector is alarmed,” said Michael Thatcher, chief executive of Charity Navigator, a charity rating website.
Estimates of the impact from an increase in the standard deduction vary. According to the Tax Policy Center, more than 46 million filers would be expected to itemize in 2018 under current law, but that number would drop to fewer than 20 million.
For many charities, 2017 is shaping up to be a good one for fundraising, as the economy hums along and the stock market booms. The United Way of Greater St. Louis, for instance, which serves Missouri and Illinois, expects top donors to contribute 6 percent more than what they gave in 2016.
But the future is cloudy under the new tax regime. The group estimates a potential drop in taxpayer giving to charities of $169 million annually in Missouri, and $431 million in Illinois, under the new tax law.
One short-term bright spot: Donors, uncertain about whether they can deduct a contribution next year, may be more generous this year, giving nonprofit groups a bump in 2017 fundraising.
Some fundraisers are asking donors to consider doing just that.
The Greater Milwaukee Foundation, which makes grants to support community and civic groups, sent an e-mail to donors, explicitly noting the effect of the tax overhaul. “If you are a taxpayer who itemizes,” the e-mail said in part, “it probably makes sense to accelerate some charitable contributions into 2017 to get a larger income tax deduction this year.”
Ellen Gilligan, foundation CEO, said the organization has an endowment and doesn’t expect its grant programs to be significantly affected in 2018, but there is concern about the longer-term impact of the tax change. “Eliminating the tax incentive,” she said, “has the potential to have a very negative impact on charitable giving.”
United Way Worldwide, ranked the largest charity in 2017 by donations by Forbes, is recommending that its community-based affiliates contact important contributors to highlight the changes that are coming, said Steve Taylor, the charity’s vice president of public policy. “We’ve been urging them to reach out to big donors and talk to them about tax reform,” he said.
Typically, the local United Way chief executive or head fundraiser has a personal relationship with important donors, he said, and will talk by phone.
Some 26,000 to 28,000 major donors nationally give a total of about $500 million a year to United Way, in gifts of $10,000 or more, Taylor said. Some of those donors may be affected by the change in the standard deduction. Donors give for altruistic reasons as well as tax breaks, Taylor said, but the increase in the standard deduction is expected to have an impact.
“They’ll still give,” Taylor said. “But they’re going to give less.”
Ann Carrns writes for the New York Times.