Michael Acaldo, the president and CEO of the Society of St. Vincent de Paul in Baton Rouge, views charitable giving optimistically.
Generous people give because they believe in the mission of a nonprofit, said Acaldo, whose organization provides shelter for the homeless and a soup kitchen for the hungry.
But he also recognizes that some donors, in calculating how much they can afford to contribute, depend on the availability of a tax deduction for their gifts.
That’s why a brand-new change to the federal tax code, by providing less incentive for charitable giving for some people, has nonprofit leaders in Louisiana and around the country on edge.
“Certainly, if the tax benefit is not there, people may not be in a position to give as much,” Acaldo said.
At issue is the sweeping overhaul of the U.S. tax system that President Donald Trump signed into law last week. Among many other changes, it will nearly double the standard deduction taxpayers receive on their federal tax bills.
At present, those who choose the standard deduction can subtract a set amount — in 2017, it’s $6,350 for single filers and $12,700 for married couples — from their earnings before income tax rates are applied.
Those who itemize, meanwhile, calculate the amount of income they can subtract by claiming eligible deductions, such as charitable donations. The extra hassle is worth it if those deductions add up to more than the standard one.
But starting in 2018, single filers will get $12,200 through the standard deduction, while those filing jointly will get $24,400. That means there’s less of an incentive to itemize, tax analysts say.
And Acaldo and others are worried that, without that incentive, some donors might forgo or reduce their charitable giving.
A May study on the issue by the Lilly Family School of Philanthropy at Indiana University gave some weight to that concern, estimating that the shift would reduce charitable giving in the U.S. by up to $13.1 billion annually. That's about 3.5 percent of the roughly $373 billion that was donated in the U.S. in 2015.
It’s unclear, at this stage, what financial impact the new law will have locally. But Acaldo and others are heartened by the changes some local donors are making ahead of the new regulations — moves that could both ensure a tax break for the donors and keep cash flowing into the organizations they support.
Two donors so far have given more to his group this year than they would have normally, because they aren’t sure what next year’s tax changes will mean for them, Acaldo said. That allows them to take advantage now of the existing tax rules, rather than giving some money now and more next year or later.
But because nonprofits need a steady stream of income, nonprofits are urging donors to consider “donor-advised funds,” a more formalized way of doing the same thing that will ensure a nonprofit gets the same amount annually that it has come to depend on.
The Greater New Orleans Foundation and the Catholic Foundation of the Archdiocese of New Orleans are two organizations that offer such funds. Under them, a donor must contribute a minimum of $5,000 and $10,000, respectively, that those organizations will manage and divvy out to groups of the donor’s choice in coming years.
Contributions to donor-advised funds that are made before Dec. 31 can be deducted under the old tax rules, said Erin McQuade-Wright, the Greater New Orleans Foundation’s vice president for donor relations. Those donations can be cash, but they often are stocks, she said.
While McQuade-Wright couldn’t immediately say whether the new tax rules have prompted more people to set up such funds, the Catholic Foundation has fielded calls in the past week from people wishing to create five such funds — a year-end spike unlike any that the foundation's chief operating officer, Josephine Everly, has seen in her career.
“I think people are just learning about it, but they are taking advantage of it,” she said.
The minimum donations required to create those funds, however, might be daunting for less well-off donors. That means that some nonprofits, hoping to make up now what they might lose in the coming years due to the tax code changes, may not get as much as they need, particularly with only a few days left in the year to take advantage of the old rule.
But those organizations remain hopeful that donors who wish to see them flourish will continue to support their efforts, regardless of what tax break is associated with those donations.
“Some people will no longer see the tax benefit, and they will make better decisions for their investment,” said Kelly Pepper, president and CEO of the Louisiana Association for Nonprofit Organizations.
“But I truly believe in the greater good, and I believe that the people of Louisiana will remember the importance of the nonprofit sector and they will support the work that we do with them, for them and for the greater community,” she said.