Facing uncertainty, charities use new tax law to push for donations
Every holiday season is make-or-break for charities, a rush to solicit donations from people looking to help a good cause and get a last-minute tax deduction.
But the final sprint of 2017 is even more hectic for charities and donors alike, as the new federal tax law has dramatically changed the tax benefits of giving and could lead to a sharp drop-off in donations next year.
The Massachusetts Nonprofit Network has estimated that donations to charities in the state could decline by hundreds of millions of dollars as fewer taxpayers itemize deductions in 2018. The group is pushing its more than 700 member organizations to use the tax changes to increase the urgency of their appeals for financial support at the end of this year.
“All of a sudden donors have a big incentive to do as much giving as possible at the end of 2017,” said Jim Klocke, chief executive of the nonprofit network. “It’s in donors’ best interest to understand that quickly, and it’s in nonprofits’ best interest to help donors understand that.”
The main driver in the tax bill is the doubling of the standard deduction, to $12,000 for single filers and $24,000 for joint filers. That will mean millions of taxpayers will no longer get a tax benefit from donating to charity. Another concern is the relaxation of tax thresholds on inheritances, which will reduce the incentive for wealthy people to use donations to lessen estate taxes.
The charitable deduction is popular in Massachusetts. Nearly one-third of taxpayers in the state, a little more than 1 million filers, claimed charitable deductions totaling $5.5 billion in 2015, according to IRS data. While widely used among wealthier taxpayers, the charitable deduction is popular across all income groups; the average deduction in Massachusetts is $5,316.
But some tax specialists have estimated that the higher standard deduction levels will result in tens of millions of Americans no longer itemizing deductions. And that has charities urging donors to front-load their donations, by moving gifts they planned to give next year to the end of 2017.
Even though its annual Spring Celebration isn’t until May, Catholic Charities of Boston is pushing $750 tickets to the event now, in light of the tax bill, with the suggestion that donors can deduct the cost on this year’s tax return.
Catholic Charities chief executive Deborah Rambo worries about a one-two effect: a downturn in donations next year, and cutbacks in public assistance and social services as the federal government reckons with lower tax revenues and soaring deficit.
“We provide really basic safety net services to a large number of people, and we do that with dollars from private donors principally,” Rambo said. “One of my biggest worries is the squeeze that’s going to happen if the number of dollars goes down.”
Tax advisers are also encouraging clients to use what are known as “donor advised funds,’’ which could help nonprofits smooth out their cash flow and also preserve tax benefits. These funds will provide an immediate tax deduction for donors who set them up by the end of 2017, but will also allow them to disburse the donation whenever they want — into next year and beyond.
“It’s easy to set up and it leaves them a little wiggle room,” said Jane King, owner of Fairfield Financial Advisors Ltd. in Wellesley. Her firm has received a dozen calls from clients with questions about the timing of their donations in light of the tax changes.
Normally used by the very wealthy, these can be used by middle-class taxpayers who want to donate as little as a few thousand dollars a year.
The Combined Jewish Philanthropies of Greater Boston reports a significant increase in such funds from donors — about 25 new ones in recent months — and now manages approximately 700.
Charlie Glassenberg, vice president of gift planning at the organization, does not believe the uptick in donations necessarily means donors will give less next year because of the loss of a tax benefit.
“People are passionate about their causes. They’re responsive to the need. When new needs come up, we see a response almost immediately,” Glassenberg said, citing a surge in giving after this year’s damaging hurricane season. “Regardless of the tax incentives, people who want to make a difference in the world will continue to do so.”
Despite being put on the spot by last-minute legislation, some charities are steering clear of giving out tax advice to donors.
“Obviously, people can draw conclusions from the new tax law, but we’re not in the business of giving tax advice,” said Neil D. Steinberg, chief executive of the Rhode Island Foundation, which annually provides more than $40 million in grants to nonprofits in that state. “We want people to be educated and inspired and to give because it’s the right thing to do.”
The first year of President Trump’s term has produced an unexpected windfall to many charities, as donors concerned about his policies amped up giving to certain causes as a form of political protest.
The American Civil Liberties Union, for example, reported raising $24 million online in a single weekend in January, more than its usual digital fund-raising total for a whole year.
But donors have also been keeping one eye on tax reform for a long time. Paul S. Grogan, chief executive of The Boston Foundation, noticed a surge in donations dating back to the end of 2016, bringing the total for that year to a record-breaking $192 million.
The organization, which helps fund job training, education, and other services around Greater Boston, hopes to approach the same level this year, Grogan said, but what happens next is anybody’s guess.
“That will be perhaps one benefit of this change: that it will be clearer than it ever has been how important tax benefits are in charitable giving,” Grogan said. “It’s been very hard to conduct an experiment in that, but now we’ve got one whether we like it or not.”