Quite frequently I speak with a nonprofit and the question arises, “how do you think the new Tax Cuts will affect our incoming contributions?” This isn’t the first time nonprofit executives chattered about a similar topic yet nonprofits continue to successfully support the community with great causes.
What is affected?
Take note: The H.R. 1, Tax Cuts and Jobs Act “TCJA” does not affect 2017 taxes and the provisions take into effect as of January 1, 2018.
The main topics that pertain to nonprofits are as follow:
- The deductibility of charitable contributions.
- The new excise taxes on selected nonprofits.
- The treatment of unrelated business income generated by charities.
- The changes in the ta-exempt treatment of interest income from certain bonds issued by nonprofits.
Under the Act, donors who itemize their deductions on their tax return may claim gifts up to 60% of their adjusted gross income. This means, wealthy donors will be more likely to give more but fewer donors will itemize.
“Taxpayers may deduct charitable contributions only if they itemize their personal deductions instead of taking the standard deduction. If you don’t itemize, you get no deduction. Currently, about 30% of all taxpayers itemize. As you might expect, the higher a taxpayer’s income the more likely it is that he or she will itemize. Itemizers are far more likely to donate to charity than non-itemizers. 83% of itemizers report giving to charity compared with only 44% of non-itemizers. Non-itemizers contribute less than 20% of total charitable giving.” Resource: Nolo
Well, all this may be true, but how do experts know this? “Itemizers are far more likely to donate to charity than non-itemizers.” Really? Just at a dinner gathering the other night we talked about this with 6 other friends. They all are middle income working class people with HUGE hearts. They are not “wealthy”. They typically did the standard deduction. Wendy participates in a cancer-fighting crowdfunding, donates to Goodwill, supports the Boy Scouts and donates to several community charities. Alex donates $20 or so dollars every time a charity asks him for his help. All these gifts add up. After long discussion, the TCJA didn’t matter to them. They will continue to contribute to their charity of choice. Okay, we are not rubbing elbows with millionaires, but we are a sampling of the mass population and that accounts for something.
So, why do people give?
Well, we can say…rich people give for the tax incentive. The rest of us, we give because we care about the cause; therefore, stay your path and keep cultivating, engaging and asking.
Before stressing over this new TCJA, check to see how much of your revenue is coming from the “wealthy” donors. Revenue sources vary by organization, organization cause, size and structure. If you are an university, huge medical center or a national branded organization, your situation is different. You probably have a million (sarcasm) records in your database and if 10% of them are wealthy, then you may be affected.
Read more on the Tax Cuts and Job Act on these resourceful sites.