Trump administration tax laws may explain slowdown in year-end giving

The five-day period between Christmas and New Year’s is one of the busiest times for charitable giving. But under President Donald Trump’s new tax laws, nonprofits across the country could see a decline in year-end donations.

Some Charlotte organizations may be feeling the effects already.

The local branch of The Salvation Army relies on people to make contributions during the holiday season. As of Wednesday, online fundraising was tracking similarly to previous years, but mail-in donations were down nearly $120,000, according to Major Larry Broome, commander of The Salvation Army of Greater Charlotte.

He said that he hopes donors can make up the difference before the new year.

“It does look like our giving is going to be down a little bit this year unless there’s a big tick up in this last week before the end of the year,” Broome said.

The Salvation Army wrote to Congress last year when the tax code changes were being considered to encourage lawmakers not to implement the policy or revise it so that it wouldn’t hurt charities, he said. Nonprofits across the country continue to advocate for a policy that allows all taxpayers — not just those who itemize deductions — to reap the benefits from donating, according to New York Times reports.

But it was signed by Trump in December 2017 and will affect how people file their 2018 tax returns.

The Tax Cuts and Jobs Act was the most comprehensive tax law overhaul in 30 years. It raised the standard deduction for individuals from $6,350 to $12,000 and for married joint filers from $12,700 to $24,000. It also capped the deduction for local and state taxes at $10,000.

Come the end of December, people usually have a clearer idea of their tax situation and, if they’re close to crossing the standard deduction threshold, they may decide to donate more to take advantage of the tax savings. But a higher standard deduction means that fewer taxpayers will approach that threshold, and so they may pass on year-end giving.

“We’re a faith-based organization, so that means we keep the faith that people are going to come through and we’ll find a way to make sure that we continue to serve people in need and not turn anyone away,” Broome said.

A study from Indiana University’s Lilly Family School of Philanthropy estimates that because of the tax code changes, households will donate $13.1 billion less annually, a 4.6 percent decrease from recent years.

David Heinen, vice president for public policy and advocacy at the North Carolina Center for Nonprofits, said that statewide, only 5 percent of taxpayers are expected to itemize their 2018 tax returns, down from nearly one-third in recent years.

“It doesn’t mean that they’re not going to continue to give, because the reality is that a lot of giving is motivated for reasons other than tax purposes,” Heinen said.

Cars drive up to a Goodwill donations drop-off stop at the Goodwill Ballentyne store Dec. 27. David T. Foster III dtfoster@charlotteobserver.com

A congressional report released earlier this year predicted that the number of filers who itemize deductions will drop from 46.5 million in 2017 to 18 million in 2018 as a result of the new tax laws.

But that doesn’t mean that nonprofits will see a mirror slump in giving, according to Duke Law Professor Richard Schmalbeck. That’s because the taxpayers who will continue to itemize are typically higher income filers who have larger deductions and contribute the majority of donations to nonprofits.

And, he continued, the tax bill’s slashing of corporate and individual income tax rates could mean that people find themselves with extra savings at the end of the year that they want to donate.

“Donors who are the owners of corporate equities and other smaller business interests should feel somewhat enriched by the tax bill,” Schmalbeck said. “That may create some opportunities for charities.”

Some taxpayers who are better off claiming the standard deduction may plan their charitable contributions so that they can still take advantage of the tax incentives for donating. One strategy is to concentrate donations in one year so that the itemized deductions exceed the standard deduction for that year’s tax return.

The changes to the tax code will expire in 2025 and revert back to those in effect in 2017 unless Congress acts before then.

Heinen said that charitable giving may actually be up overall in 2018 because of the outpouring of charitable contributions in the wake of Hurricane Florence.

But some charities may struggle to reach their year-end fundraising goals.

“People don’t really know just how powerful the incentive of the tax deduction is in terms of generating charitable contributions,” Schmalbeck said. “It’s either slightly or significantly bad news for charities.”