For nonprofits that solicit individual and corporate donations, one of the potential pitfalls of the new federal tax law is the doubling of the standard deduction, for individual and married couples.
If taxpayers now choose that option because it has tax advantages, they can no longer deduct their charitable giving for the year. Only taxpayers who itemize will be able to declare charitable donations.
So, will that mean fewer donations, or smaller donations to nonprofits because donors no longer have a financial incentive for charitable gifts? Several nonprofit leaders in Rhode Island said recently they’re not sure what will happen but are concerned enough to re-evaluate how they communicate with contributors.
Several said they plan to make direct solicitations to contributors who may benefit from the first significant update of the federal tax structure in 30 years – and get a larger tax return.
Earlier this month, one of Rhode Island’s largest employers, Citizens Bank, announced it would contribute $10 million to its charitable foundation, which distributes grants and supports community programs, because corporate tax reform had provided it with an opportunity to make a positive impact.
“Corporate tax reform provides us an opportunity to recognize the role our colleagues have played in delivering better results for customers and shareholders, and to positively impact the communities where we live, work and play,” said Bruce Van Saun, Citizens chairman and CEO, in a Jan. 2 statement announcing the charitable contribution and one-time, $1,000 cash bonuses to employees totaling $12.5 million.
But a prominent organization that represents nonprofits nationally has warned the new tax law will have a devastating impact on the bottom line for many charitable organizations.
The National Council of Nonprofits – which had unsuccessfully lobbied against the Tax Cuts and Jobs Act – said the tax law “will be devastating to the millions of people around the country who rely on charitable nonprofits for everything from food and shelter, to faith-based sanctuaries and job training, to a safe place to escape domestic abuse and enrichment through the arts.”
Its analysis of the tax-code changes predicted that 90 percent of taxpayers would take the standard deduction, shrinking their giving to charitable organizations by $13 billion annually.
Congress did not include what was called the “universal deduction,” which would have allowed all taxpayers, regardless of whether they itemized, to deduct up to $4,000 in donations as individuals or $8,000 as a couple.
Peter Mello, the co-CEO and managing director of WaterFire Providence, said he’s concerned about the new tax code and its impact on nonprofits. But he said WaterFire will adapt its marketing campaigns, if needed, to make sure it’s telling its story effectively to the right audiences. “People are trying to process this” tax change, he said.
Without a financial incentive, will people continue to give? Mello and other nonprofit leaders said recently they will need to make sure that donors understand their story and their mission. That is the primary reason why people give, said Mello.
“I don’t think people write a check thinking of their taxes,” Mello said.
David Caprio, president of Children’s Friend, a nonprofit social service and educational agency, said most of its budget comes from state and federal sources. But the individual and corporate donations, which make up less than 10 percent of its budget, are the most flexible dollars.
Children’s Friend uses its federal and state dollars to run its Head Start programs. Individual and corporate donations are used for direct assistance to families with low incomes.
“It certainly will have an impact,” he said. “We’re not looking forward to a drop. It wouldn’t have a dramatic impact. But this is the funding that is the most flexible, where people can make a difference. For taking care of kids in the winter holidays, or helping a family that’s had their heat shut off, or giving a kid a winter coat, that’s where the contributions could go.”
He hopes that donations will continue as they have. In initial conversations with staff, and the agency’s development team, Caprio said they’ve talked about changing their message for the people who have traditionally supported them who may actually have more disposable income as a result of the law.
“We’re convinced that 99.9 percent of our donors are giving to Children’s Friend because they’re worried about vulnerable young kids in Rhode Island,” Caprio said. “It’s not just about a tax write-off.”
