Changes in federal income tax laws that take effect Jan. 1 have some churches and other nonprofits concerned that donations will drop substantially while demand for services will increase.
“There is very likely to be a reduction in how much people give,” said David Heinen, vice president for public policy and advocacy at the N.C. Center for Nonprofits, based in Raleigh.
The Republican tax plan approved this month nearly doubles the standard deduction for married couples filing jointly from $12,700 to $24,000. The standard deduction rises for singles from $6,350 to $12,000. With the dramatic increase in the standard deduction, itemizing deductions will be less attractive to taxpayers.
Taxpayers claim charitable contributions, along with mortgage interest, property taxes and some other expenses, as deductions from their taxable income if they itemize and the total exceeds the standard deduction. For some people – particularly those with higher incomes – the deduction for charitable gifts has served as an important incentive for giving because it helps reduce taxes owed.
The IRS has said that about 30 percent of taxpayers itemize. Some economists predict that under the higher standard deduction, only about 5 percent will itemize.
But that doesn’t necessarily mean people will stop giving to nonprofits and to churches and other houses of worship.
“It’s difficult to predict exactly how this tax plan will play out and impact our members,” said David Anderson, communications specialist at Pullen Memorial Baptist Church in Raleigh. “We trust that our membership gives to see that our mission in our community continues, and we hope that they will continue to support us.”
Contributions to churches and other houses of worship are treated by the IRS the same as those to nonprofits, but donors may look at them differently; members of churches are encouraged to be good stewards and reliable financial supporters of the work their churches do. To those for whom financial support is seen as a religious obligation, changes in the tax law may be inconsequential.
“The average family that puts a check into the offering plate every week, they’re probably going to keep giving at that same level,” said Jennifer Copeland, executive director of the N.C. Council of Churches.
The increase in the standard deduction may also leave some taxpayers with more disposable income, which they could use to sustain or even increase their charitable donations.
Nonprofits in North Carolina collect and spend roughly $42.5 billion a year and employ about 10 percent of the workforce.
But some nonprofits are worried about donors who make gifts in the thousands of dollars, enough to make a big difference to the organization receiving the money but not enough to make it worthwhile for the donor to itemize under the new tax rules. Anderson said that Pullen has a couple of donors who pledged money to its recent capital campaign who looked into making their gifts in the last days of 2017, so they could claim the deduction, rather than waiting until 2018.
While the effect of the tax law on charitable donations may have been unintended, it was not unknown to lawmakers. Congressman Mark Walker, a Republican from Greensboro, introduced a provision in October that would have allowed taxpayers to deduct charitable gifts in addition to the increased standard deduction. The provision was not included in the final tax bill.
Operators of some nonprofits are hopeful Congress may still act.
If not, and if charitable giving drops $13 billion nationally as one economist has predicted, North Carolina charities could be expected to take a big hit. So could the people who depend on them.
In the state, Heinen said, nonprofits collect and spend roughly $42.5 billion a year and employ about 10 percent of the workforce. In the Triangle, they include Duke University Medical Center and WakeMed hospitals.
Beyond the changes in the standard deduction, the tax could have additional, indirect effects on nonprofits. To pay for the tax cuts included in the plan, Congress will have to cut spending. Some cuts are expected in programs that provide direct aid to the poor, forcing some recipients to look elsewhere for help. Cuts also are expected to programs that funnel tax money to nonprofits that provide services to the poor, such as housing assistance or health care.
“There is a continuous need for the services that nonprofits provide,” Heinen said, and organizations across the state are worried that there will be more people in need of services, “and fewer resources to provide them.”