Nonprofits in Connecticut and nationally are worried new tax reforms could harm charities, hospitals, foundations, and universities.
The recently-enacted Tax Cuts and Jobs Act increased the standard deduction to $24,000 for couples and $12,000 for individuals. It is estimated the change could reduce annual giving by $13 billion, according to The NonProfit Times.
The law retains existing deductions for charitable donations, but the increased standard deduction is expected to prompt about 30 million tax filers to stop itemizing, the NonProfit Times said.
Local accountants are advising clients to accelerate charitable giving before the end of the year so they can take a deduction on their 2017 tax return because the option won’t be available if they take the standard deduction in 2018.
“This tip is for taxpayers who have itemized in previous years, but are unsure if they will itemize in future years in light of the increased standard deduction,” wrote Carlton Helming, of Helming & Co. in Wallingford, in a newsletter to clients. “Consider paying 2018 donations to charities and/or churches before the end of 2017 to ensure you are able to claim them as a deduction.”
Helming feels tax filers with “pet agencies” will continue to support them regardless of the tax write off.
Any reduction in giving will come at a time when the state and federal government are flat-funding or cutting social programs and reducing funding to nonprofits.
“Spending on social programs is down, there is less funding available and fewer people making donations,” said Gian-Carl Casa, president of the Connecticut Community Nonprofit Alliance. “Adding these things together would create a perfect storm.”
The Indiana University Lilly Family School of Philanthropy. estimated that changes in the standard deduction would reduce charitable giving by $4.9 billion to $13.1 billion.
Another provision of the law was related to a 1.4 percent tax on annual investment income of university endowments, applicable to universities with at least 500 students and per-student assets of $500,000, The tax applies to about 30 colleges and universities, including Yale and its endowment of $27.2 billion. Yale President Peter Salovey and other wealthy university leaders have spoken out against the federal tax
“Taxing universities will harm the country by taking away funds that would otherwise promote excellence in teaching and research, as well as financial aid,” Salovey wrote in a statement. “… We should not be pursuing policies that create obstacles to spending on education and research, which drives economic growth, global competitiveness and innovation that creates jobs.”
Casa expects cash-strapped states to follow suit and impose their own taxes on wealthy universities. It could also extend to other nonprofit entities like hospitals and cultural institutions. Connecticut lawmakers have broached the idea of asking non-profit private institutions to pay taxes to offset the costs of local services and generate more revenue, but the measure did not gain traction.
Changes in the estate tax exemption also may hurt non profits as it weakens incentives for wealthy taxpayers to bequeath property and assets to charities.