Charities eye effect of new tax law on giving
By Jon Hawley
Sunday, December 31, 2017
The most sweeping tax reform in decades is already being felt in the Albemarle, where nonprofits worry it'll reduce giving and wealthier citizens are trying to avoid taking a hit from property taxes.
Just about a week ago, President Donald Trump signed the tax legislation, which cleared Congress only after narrow, party-line votes and intense controversy. Republicans hail the package for slashing corporate and individual taxes to spur economic growth, but Democrats and various interest groups decry it as a windfall for the wealthy that'll explode the deficit and for repealing the “individual mandate” that requires everyone has health insurance.
Nonprofits and charities are worried about the tax law for another reason: it reduces an incentive for philanthropy. Filers reduce their tax bills by claiming either a standard deduction or itemizing their deductions, if deductible expenses' total value is more than the standard deduction.
The tax law will almost double the standard deduction for taxes filed in 2019 and on, from $6,350 for an individual to $12,000 and $12,700 for a married couple to $24,000. That'll exempt thousands of more dollars from people's tax bills, but it also means millions of middle-income Americans won't need to itemize deductions – like donations to tax-exempt organizations – to minimize their taxable income.
Therein lies the problem for charities like the Albemarle Area United Way, Interim Director Bill Blake explained Thursday. Though he's only been on the job about three months, he said it's clear the AAUW relies predominantly on smaller donors who might personally benefit more from the large standard deduction instead of donating a few hundred dollars to the AAUW and the 18 agencies it supports.
He also noted the AAUW gets many donations thanks to various employers asking their employees to donate through money withheld from their paychecks. Some of those employers even match those contributions by half or even dollar-for-dollar, he added.
Though the incentive to donate is reduced, Blake still said it's “hard to crystal-ball what may happen.”
“I'm hoping that, on the local level, donors still feel passionate about giving,” Blake said. That also seems to be the case, he added, as the AAUW is more than halfway toward its fundraising goal for 2017-2018 of $275,000.
Asked if the increased standard deduction will make charities work harder to build relationships with donors – earning support out of commitment and not self-interest – Blake said “the short answer is yes.” There are many causes competing for people's support, including many online causes that appeal to younger people, so charities should already be impressing upon people how important their work is, he explained.
Blake also said the United Way's three pillars are “education, income and health,” and the AAUW aims to be a “catalyst” that helps people get to a better, more self-sustaining standard of living.
People who pay a lot in property taxes are also worried about the new tax law – including people living in Currituck, county Tax Administrator Tracy Sample said Thursday.
Sample said people are already calling his office about prepaying their 2018 property taxes before a new cap on state and local tax deductions takes effect. Currently there's no limit on the amount of such taxes that can be deducted, but the tax law will set it to $10,000.
There are many people in Currituck who own valuable beachfront property and/or have second homes, he said, leading them to join Americans across the nation in trying to prepay property taxes. They can do so, he said, but it's ultimately up to the Internal Revenue Service whether the $10,000 cap will apply to how much of those prepayments can be deducted from their income taxes.
He shared an IRS advisory stating “a prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.”
Currituck assesses taxes on Jan. 1, he said, so the cap may apply.
Tax preparation offices are also fielding questions about the tax reform law, even though it won't apply to taxes for 2017 that will be filed through April. Bobbie Sawyer, of the Jackson Hewitt office in Elizabeth City, said she's not hearing that many questions about charitable giving or state and local tax deductions. Instead, she's hearing questions about the Earned Income Tax Credit, the Child Tax Credit and the standard deduction.
While stopping short of saying the new tax law would benefit everyone, Sawyer said it would benefit people who don't itemize deductions and would double the Child Tax Credit. Notably, published reports don't state the Earned Income Tax Credit is changing, although they note it may grow less slowly in time due to a less generous measure of inflation.