Charities fear new tax law could lead to drop in donations

MARION - Charities in Marion are bracing for an expected loss in annual contributions as a result of a recently passed tax law they believe will eliminate one important incentive to donate.

The Tax Cuts and Jobs Act of 2017, signed into law in December, provided a major overhaul to the previous tax legislation, including a provision that nearly doubled the standard deduction to $12,000 for an individual and $24,000 for a married couple.

Raising the standard deduction is expected to reduce the number of taxpayers who itemize deductions — including charitable donations — from the current 30 percent to 5 percent, experts say.

Currently, only taxpayers who itemize — meaning, they detail gifts to charity and other spending on their returns — may deduct contributions.

The disincentive to itemize, combined with a decrease in the top marginal tax rate, could reduce charitable giving across the country by $16 billion to $24 billion annually, according to estimates from the Council on Foundations.

In Ohio, some charitable organizations are worried that a reduction in individual giving may have a negative impact on their daily operations. 

“The nonprofit sector is worried,” said Dean Jacob, president and CEO of the Marion Community Foundation. He said it could lead to less money going to programs that directly benefit the needy. 

"We saw a noticeable uptake in charitable giving in the end of last year," he said. "However, most people will not receive a tax deduction for their contributions when they file their taxes for tax year 2018 and we expect to see a drop in individual donations as a result."

The Marion Community Foundation, which receives no state or federal funding, gave grants to 72 charitable organizations last year and saw more than $1 million in donations, a $400,000 increase from 2016. 

Jacob said donations vary on a yearly basis and can depend on a number of different variables. However, he believes that some donors, uncertain about whether they would be able to deduct a contribution for 2018, were more generous toward the end of the year, leading to a bump in charitable gifts. 

Charitable giving has been on the upswing for the past few years and 2017 is thought to have been a good year for donations. 

More than $390 billion was given to charity in 2016, with individual donations accounting for 72 percent of that total — a four percent increase from the following year — according to an annual report by the Giving USA Foundation.

Amber Wertman, executive director for the United Way of Marion County, said though she expects to see a potential loss of funding over time,  she believes that people will still be willing to give. 

"The concern that we have is not that people won't give, but that they will reduce the amount of their gifts,” she said. "People will give, but how they do it will look different."

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. 

"It is becoming more important for us to reach out to our donors and let them know how impactful their gifts truly are," Wertman said. "We have to encourage people to give, especially as government funding may be limited. If their is no money, there is no mission and if we receive less donations so do our community partners."

United Way of Marion currently provides funding to 18 different organizations that may be affected if annual donations decrease. Wertman said though it is still too early to tell how this will effect the organizations annual budget, tax incentives are a major motivation for some donors.

The charitable deduction has been a part of the tax code for 100 years as a means to incentivize donations. While the new tax law retains the deduction, critics say limiting it to the wealthiest 5 percent of Americans can be damaging to local charities that depend on individual donations.

Chuck Gehring, CEO of the Columbus-based nonprofit LifeCare Alliance, said the average taxpayer will be the most affected by the loss of charitable donation incentives. He classified that group as "bread and butter" donors, who often gift around $50-150, making up a large chunk of individual contributions for most charities. 

"The honest answer is that there is some cause for concern, but there’s  not a lot that we can do about it other than wait and see," he said. "One possible outcome is that there will be a stronger reliance on governmental funding that may not be available."

HKarim@nncogannett.com

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