Homeward Bound of WNC has experienced a lot of change this year. In October, the nonprofit bought an apartment building on Short Michigan Avenue in Asheville, its first foray into direct property ownership. The move came in response to the area’s continual shortage of affordable housing. “We’ve never been in this business before, so it takes a different skill set for our staff, a different skill set for our board,” says Eleanor Ashton, senior resource development director for the organization, which works to combat homelessness.
But on top of that pivot in programming, notes Ashton, her nonprofit is also contending with instability in the landscape of donations. In the first quarter of its fiscal year, contributions have been lower than usual, she reports, adding that the shift may be due to tax code changes mandated by the Tax Cuts and Jobs Act of 2017.
“We were all expecting it last year, that we would feel this slowdown in donations, but we didn’t,” she explains. “What I think might have happened was people saw that they couldn’t deduct certain things that they had been able to before, and they saw how it affected them when they did their taxes last year. So they’re just being a little more conservative this year.”
Among the law’s biggest changes, explains David Heinen of the North Carolina Center for Nonprofits, was almost doubling the standard income tax deduction. Individuals can now deduct $12,200 from their taxable income without itemizing, rather than $6,350; married couples filing jointly can deduct $24,400, up from $12,700. The law also eliminated the personal exemption, however, which for many taxpayers sheltered an additional $4,050 or more, depending on their income level and number of dependents.
This higher itemization threshold, says Heinen, meant roughly 22 million fewer people claimed a tax benefit from their charitable giving in 2018 than in 2017.
Many donors, he continues, thus had less of an incentive to open their wallets. According to a study by Giving USA, a Chicago-based foundation, individual charitable contributions nationwide decreased by 3.4% in 2018 from 2017 levels, adjusted for inflation. And across North Carolina, he says, nearly a third of nonprofits — including those in Asheville — worry that the worst may be yet to come.
“A lot of donors just didn’t realize, even though it was pretty well publicized, that there were big tax law changes and the standard deduction went up,” Heinen explains. “They didn’t realize that they were no longer going to be getting anything back on their taxes for their charitable contribution. So the expectation is that this year, there’ll probably be a bigger drop in giving.”
Not everyone saw a significant change last year, however. Rollin Groseclose, vice president of tax services at the Asheville accounting firm Johnson Price Sprinkle, says most of his company’s clients gave comparable amounts to charity in 2017 and 2018. “The tax tail doesn’t seem to be wagging the dog too much on that, from what we’re seeing,” he observes.
But Groseclose says he received a lot of questions about all aspects of the new law, which President Donald Trump has touted as a signature policy accomplishment, during the last tax season. Taxpayers may not have understood the implications of their decisions until it came time to pay Uncle Sam, he suggests, but they most likely know now that charitable itemization won’t benefit them.
Although the changes triggered by the law are complex — Groseclose jokingly calls it “the CPA Job Security Act” — he says the folks most affected by the increased standard deduction are typically those who have only a moderate amount of deductible expenses. People accustomed to claiming mortgage interest, property taxes and medical expenses, he says, are among those most likely to no longer itemize.
Ally Wilson, development director at Pisgah Legal Services, points to another tax code tweak with uncertain consequences: a doubling of the threshold for wealth subject to an estate tax that tops out at 40%. Over $11 million of a deceased person’s assets — up from $5.5 million — can now be passed on to inheritors tax-free.
“Before the 2017 bill, some families might have been choosing between giving that money to charity or giving it to the federal government through the estate tax, which made it appealing to choose a charity that was close to their heart,” Wilson explains. “But that has changed, so more people might not necessarily see the benefit of giving to a charity in their estate plan.”
And while her organization doesn’t rely on bequests as a regular income stream, notes Wilson, Pisgah Legal does hope to grow its endowment through planned giving to help support the nonprofit’s future. It might take years, she adds, for the impact of the tax changes to be fully realized.
Getting the word out
Because of this uncertainty, says Wilson, her organization isn’t leaving donations to chance. In anticipation of the end-of-year giving season, Pisgah Legal will host “Drink Wine and Talk Taxes,” a free charitable planning event for donors, at its Charlotte Street office on Wednesday, Nov. 20. “We are trying to be a resource for our donors, to help them navigate different ways to fulfill their charitable intent — obviously always with the caveat that we’re not tax experts,” she cautions.
Other local nonprofits are also stepping up their donor education efforts. Phil Leonard, treasurer of the Asheville Poverty Initiative, says his group plans to include new information about the tax benefits of contributing directly from retirement accounts in its fundraising outreach. Ashton, meanwhile, notes that Homeward Bound is planning an entire e-newsletter on the topic.
Nonetheless, Ashton maintains that the basics of fundraising haven’t changed all that much. Homeward Bound issues regular updates on its accomplishments and hosts three annual events for major donors, she says, in an effort to build rapport with key supporters.
Heinen agrees. “It’s really establishing a relationship with your donors and not just making the contribution a transactional thing,” he says. “Because if you’re just giving money mostly for a tax break, you’re probably not going to keep giving.”
As a result, continues Heinen, nonprofits that have traditionally relied on a year-end appeal may need to reconfigure their fundraising. A food pantry, for example, might choose to tie requests for support to a goodwill-generating canned goods drive in July rather than waiting until the holidays.
“Some organizations that maybe hadn’t done galas or 5K runs or other types of fundraising events before, they’re realizing that maybe those make more sense now,” he adds. “When you’ve got people in the room, they’re more likely to give more than if they’re not a captive audience.”
Making it work
Despite the changes, there are still ways that folks with charitable inclinations can make their money work for the community while reducing their tax liability. Groseclose, a certified public accountant, advocates “doubling up”: giving two years’ worth of donations every other year, so the total in those years exceeds the standard deduction. Combined with a similar approach to property tax payments and discretionary medical expenses, he says, “You might be able to get some extra goodies that you wouldn’t if you just paid it the way you always have.”
Pisgah Legal, notes Wilson, has several donors who have let the nonprofit know that they’ll be using this approach in the future. “It’s great for us when people do communicate with us, so we can plan in terms of what we can expect annually,” she emphasizes.
But accounting strategies aside, Groseclose suggests that, at least for those donors whose itemized deductions don’t exceed the expanded standard amount, it may simply be a question of exchanging one benefit for another. “The standard deduction is a free deduction: You didn’t pay for it, so you aren’t really losing a deduction; you’re just swapping it out for something else,” he points out.
For her part, Ashton says she hopes Homeward Bound’s donors understand that, whatever the vagaries of Washington lawmakers, homeless folks in Asheville still need safe places to lay their heads.
“Homelessness is a community issue, and we really need community support in order to make a difference,” Ashton declares. “I think that our supporters are so passionate about ending homelessness that they’re not going to let these changes in the tax code really impact their donations to us.”