A change in federal tax law could result in a drop in charitable donations, but local helping organizations aren’t concerned — yet.
An Indiana University study shows that recently approved changes to the U.S. tax code could result in less of an incentive for people to donate to charity. That’s because the amount of people who itemize their deductions, and therefore can receive tax breaks from their charitable donations, is expected to drop significantly.
Local charities say they are confident that people give not just because of the tax benefits. Their donors they truly believe in the causes they are financially supporting, they said.
Even so, they plan to keep close track of how much money their fundraising brings in this year to see what impacts the tax changes have.
And then they can decide if they need to make any changes to their fundraising efforts to ensure they are able to continue their work in the community.
“I’ve never had anyone say, ‘I’m giving to the United Way so I can have a tax deduction’,” United Way of Johnson County Executive Director Nancy Lohr Plake said. “People who are giving give because they support the organization and it aligns with their desire to help.”
The study, conducted by the Indiana University Lilly Family School of Philanthropy in 2017, examined how key changes to the tax code could impact the amount of donations nonprofits receive. The study estimates the changes will result in charities across the U.S. seeing a drop of anywhere between $4.9 billion and $13.1 billion in donations per year.
Many people who donate to charity in 2018 won’t be able to get the same financial benefits of doing so that they received in prior years. The tax bill signed into law last year doubled the standard deduction, which is the amount taxpayers can claim to reduce how much they owe in their federal income taxes. Under the old tax law, taxpayers could itemize their deductions, listing their charitable donations, certain taxes paid and business expenses for a tax break. But with the new law, most taxpayers will most likely take the standard deduction instead.
Removing the financial benefit for charitable donations is predicted to drop donations to charities anywhere from 1.7 percent to 4.6 percent, the study found.
For local nonprofits, who rely heavily on the support of donors to provide childcare, food, clothing, healthcare and other essential services to families in need, a drop in donations means they won’t be able to help as many people as in prior years.
But understanding what the impact will be could take time, since the changes to the tax law have been in place for only about a month.
Local charities haven’t taken any steps yet to change their approach to fundraising.
“That passed so late in the year and changed so quickly it was hard to get your head wrapped around what was being passed,” Plake said. “We will know more next year about whether it will impact our giving.”
Under the new tax law, many people will receive a tax break and have more money to spend, and that could lead them to give to causes they support, Plake said.
For Girls Inc., which provides after school services for school-age girls, their end-of-year fundraising campaign is an integral part of their annual budget, Chief Executive Officer Sonya Ware-Meguiar said.
Last fall, they raised about $15,000, and are going to be tracking how fundraising goes the rest of the year with the changes to the tax code, she said.
