The new tax law passed by Congress and signed into law by President Donald Trump in December has some area nonprofits on edge.
While the measure is said to provide tax cuts to workers, families and small businesses, according to the U.S. House of Representatives Committee on Ways and Means, it has left some greater Williamsburg nonprofits worried about how donations could be affected.
Here’s why: the new law, which went into effect on Jan. 1, doubles the standard deduction married couples can take each year, to $24,000 from roughly $12,000.
Previously, when the standard deduction was around $12,000, taxpayers chose between taking that deduction and itemizing — detailing tax-deductible gifts to charity on their returns. Now, with a larger standard deduction available, taxpayers who used to donate to charities for tax write-offs might be less inclined to do so.
“Theoretically, some people should see more in their paychecks,” said Mary Beth Gibson, executive director of Here for the Girls, Inc. “It would be nice to think that they might want to do more for nonprofits, but there’s no guarantee that will happen.”
As the year continues, nonprofits will be able to better discern the impact on donations, Gibson said.
For now, there’s no sure way of predicting the effect, but there are some benchmarks.
About 70 percent of Americans take the standard deduction and don’t itemize their taxes, according to Dr. Tina Mohr, an adjunct professor at William & Mary who teaches about nonprofit taxes.
For nonprofits, a concern is that the other 30 percent — those who do currently itemize — will no longer see the benefit of doing so; they might opt to take the new, larger standard deduction, which they can do without having to provide proof of itemized expenses, such as donating to charity.
“If the main motivating factor was that donors would get to take it off their taxes, then this is going to hurt us,” said Gibson. “We would like to think that the majority of people who are giving to us were doing it because they support our effort and the tax deduction was the cherry on top.”
Gibson said her organization prepared for this possibility months ago, and is looking more to businesses for donations, as opposed to relying heavily on individuals. Corporations will receive the biggest tax cut under the new law, she added, and hopefully they’ll steer this influx of cash to nonprofits.
A large part of the concern for nonprofits comes from people not actually understanding what this law means, Mohr said.
“This is a really sophisticated tax argument that is being reduced to something simplistic. I think that the greatest problem is confusion right now,” said Mohr.
Taxes are difficult to understand, Mohr added, but one possible strategy for nonprofits in 2018 is to make sure donors fully understand the new law.
Another strategy is to stress the meaning behind the charity, she added.
Time will tell.
“Williamsburg is filled with amazing nonprofits and such a philanthropic community,” said Gibson. “I would like to believe that the people in this community will continue to support these nonprofits because they know how valuable they are to the community and the difference we make.”
Still, Mohr and Gibson hope the new law’s impact on nonprofits won’t be significant because people generally believe in the cause they’re supporting.
“You never can deny that tax has an effect on people’s behavior and that’s what the concern is,” said Mohr. “But people who give to these organizations give because they want to support a cause or charity that means something to them.”