Article Published: 01 Oct 2019

After Tax Reform, Where Do Nonprofits Stand?

Tax documents

The 2017 Tax Cuts and Jobs Act is starting to have an impact. That’s not good news.

It has taken a while to get a clear idea of how the 2017 Tax Cuts and Jobs Act (TCJA) will affect charitable giving. The nonprofit world looked with trepidation at the doubling of the standard taxpayer deduction, fearing it would prove a disincentive to donations: While people will always give to the charities they love, the amount given is often governed by its impact on a taxpayer’s bottom line. Research suggested that giving to U.S. charities overall could drop by as much as $17 billion a year. But data was hard to come by, since the full brunt of the change would not be felt until after taxpayers filed their 2018 taxes in 2019.

Almost two years into the implementation of the TCJA, data is finally available. We still need to see how donation patterns will change in 2020 before understanding the full impact of the new tax code. But patterns are emerging—and they’re alarming:

· This year’s edition of the annual Giving USA report found that charitable giving by individuals dropped an inflation-adjusted 3.4 percent in 2018. Giving to arts, cultural and humanities decreased by an inflation-adjusted 2.1 percent.

· The Fundraising Effectiveness Project found that while gifts of $1,000 or more increased by 2.6 percent in 2018, gifts in the $250 to $999 range dropped by 4 percent, and gifts under $250 dropped by 4.4 percent.

· The IRS recently released data showing that the number of Americans who claimed the standard deduction increased by 26 million from 2017 to 2018. The number of taxpayers who claimed deductions for charitable contributions decreased by more than a third during the same time period.

Many nonprofits, particularly those with access to higher-income donors, may not feel the brunt of the changes just yet. Donors on the cusp of itemizing may have also bundled their contributions in 2017 or 2018, giving more money than usual in order to have the benefit of itemizing. Advocates fear that the real impact of the TCJA may not be realized until 2020 or later.

Aside from its changes to the standard deduction, the TCJA contains another troubling provision. Under the Unrelated Business Income Tax provision, charities are now taxed on the expenses of fringe benefits offered to employees, such as parking, transportation and health club memberships.

Currently, no members of Congress support keeping it. Members of Congress from both the House and the Senate, and from both sides of the aisle, have proposed legislation to repeal this tax provision. Still, getting a vote on any changes to tax policy is a challenging process. OPERA America has joined many other charities in urging Congress to repeal the Unrelated Business Income Tax.

Through the Charitable Giving Coalition — which includes other national arts service organizations, along with nonprofits like United Way Worldwide, the YMCA and the American Red Cross — we are urging Congress to enact a universal charitable deduction. This would allow all taxpayers to claim a deduction on charitable contributions whether or not they itemize.

OA is also working with partners to push forward the Legacy IRA Act, which has been introduced in both the House and the Senate. If enacted, this bill would add to the IRA charitable rollover provision by allowing individuals aged 65 and older to make tax-free contributions to a charitable gift annuity, supporting both the senior citizen and the designated charity.

“Our advocacy work may be less visible than our grants, conferences and forums, but it’s every bit as integral to our operations,” says Marc A. Scorca, OA’s president and CEO. “We will continue to fight for a tax environment that can sustain our field into the future.”

Brandon Gryde is OPERA America’s director of government affairs and EDI officer.

This article was published in the Fall 2019 issue of Opera America Magazine.