After Federal Tax Reforms, Will Jersey Keep Giving?

Tax reform ended charitable deductions for most of us. For nonprofits it created a new uncertainty.

Illustration by Carl Wiens

After a tough spring in which the East Lynne Theater Company’s office burned down, Gayle Stahlhuth, the artistic director, worried about the group’s financial future. Not only was the company’s Cape May headquarters in ashes, but the group’s income was uncertain after Federal tax laws changed, leaving fewer taxpayers able to take deductions for charitable donations. One family told Stahlhuth they were going to make in-kind contributions, donating carpentry services instead of writing checks. Others made smaller contributions, though some continued to display their past generosity, and contributions held steady through the summer.

“When we start having our fundraisers, we’ll see,” she says.

Many leaders of New Jersey’s 38,000 nonprofit organizations express similar caution, unsure of how the new tax law, passed in December, will affect their coffers.

Nonprofits across the country are expected to receive at least $13 billion less from donors this year. That’s because under the new tax rules fewer households will itemize their deductions. Until this year, deductions drove a substantial amount of charitable giving.

“The new law effectively puts the charitable deduction out of reach for 90 percent of taxpayers,” says Linda Czipo, president and CEO of the Center for Non-Profits, the umbrella organization for the state’s charities.

With its new tax law, Congress nearly doubled the standard deduction, from $12,700 to $24,000 a year for couples. In recent years, 30 percent of taxpayers, but 94 percent of wealthy households, filled out the longer Schedule A forms to itemize their deductions.

There’s no estimate yet for how much the tax changes might cost New Jersey nonprofits, but Czipo points out that in 2015, households who itemized and earned less than $200,000 a year donated $3.1 billion to charity, a little more than half the total donated by New Jersey households. Many of them won’t be itemizing under the new law.

Certainly, people donate to charities for reasons other than tax breaks. “But it’s definitely a motivator, which is why we see so much in the last week of the year,” Czipo says. Typically, 40 percent of charitable donations come in during the last six weeks of the year, with 22 percent of online giving occurring on December 30 and 31.

On the plus side for nonprofits, the law lifts the cap on how much one can donate to charity and deduct from taxes, from 50 to 60 percent of annual gross income. That could give very wealthy taxpayers an incentive to be more generous. And the 62 percent of New Jerseyans who are expected to have lower Federal tax bills in 2018 might be inclined to redirect some of those savings to nonprofits. Corporations are also clearly benefiting from the new tax code, with their tax rate falling from as high as 35 to 21 percent, raising the possibility they will share some of the bounty through charitable contributions.

“It could be a silver lining,” Czipo says.

Some charities already have increased their focus on corporate donors. Mary’s Place by the Sea, a respite home in Ocean Grove that provides three-day stays, counseling, art therapy and more for women recently diagnosed with cancer, relies entirely on grants and individual donations averaging $200, says president and co-founder Michele Gannon. She says the organization plans to put more effort behind corporate donations.

At the same time, Mary’s Place will work on strengthening relationships with its private donors. “The organizations who spend the effort and time to stay close to their donor base are the ones that are going to really have success at this time,” says Gannon.

Family Promise, a national organization that works with houses of worship to help the homeless, has already seen an increase in corporate giving in 2018. “I think the general interest and ability to give are related to the tax law changes,” says Cara Bradshaw, chief impact officer at the Summit-based group. “Simply put: they have more cash, but may be under more scrutiny to show how they’re making good with their extra profits. Their responsiveness to sponsorship or other philanthropic requests, and their interest in partnerships, have markedly increased over the past year.”

Many factors will contribute to the totals given at the end of the year. The wealthy, who typically itemize, tend to give to universities and art museums; less affluent people give higher percentages of their income, favor religious and social-service charities and, if they haven’t itemized in the past, are less motivated by tax breaks.

Smaller organizations tend to depend more on individual donations than on government contracts and other revenue streams, and could face the most difficulties if individual giving declines sharply, says Czipo. But they may have closer relationships with their donors, which could help them survive.

The Achieve Foundation of South Orange and Maplewood, a small nonprofit with a broad base of donors, raises funds to support teacher projects and tutors in the South Orange and Maplewood School District. Eileen Collins Neri, its interim executive director, says the new law has not yet affected donations, but has made the
organization’s job more challenging. “We have to make our mission clearer,” says Neri. “You’ve got to get your message out there more, and your presence felt.”

Barry Kirschner, executive director of the Valerie Fund, says many people who could afford it gave several years’ worth of donations to donor-advised accounts at the end of 2017, to get tax benefits under the old law. The accounts will distribute the funds over the next few years. Kirschner says the new tax structure hasn’t yet hurt fundraising for his organization, which runs support centers for families affected by childhood cancers and blood disorders. The group’s gala dinner, in the first quarter of 2018, raised 15 percent more than in the previous year.
Linda J. Walder, founder and executive director of the Daniel Jordan Fiddle Foundation for Adult Autism, based in Edgewater, has built university endowments to fund services and training of specialists to work with adults with autism, in honor of her late son. She is cautiously optimistic about the impact of the tax law.

“I always find, interestingly, that the people who have the least give the most,” she says. “We encourage people, even if they can’t donate in their lifetime, to make a bequest, especially for our endowment fund. It’s a wonderful way to be supportive, and if for tax reasons they can’t do it now, they could do it in perpetuity.”

The new tax bill also doubled the minimum size of estates that could be taxed, to $11 million for individuals and $22 million for couples. The effect that change might have on charitable giving has yet to be seen.

“With the higher ceilings, there may be some marginal reduction in the use of charitable strategies for those no longer near or over the estate tax exemptions,” says Jim Reilly, a wealth advisor at RegentAtlantic, a financial advisory in Morristown. On the other hand, he says, “The change in exemption may actually make those people who were wealthy enough to be concerned feel wealthier now, and therefore more amenable to charitable donations.”

In addition to the change in standard deductions, the tax overhaul caps at $10,000 a year the amount of state and local real estate, income and retail taxes that one can deduct on federal taxes. That hits New Jersey residents hard, as 30 percent of homeowners here pay more than that on property taxes alone. But New Jersey politicians have fought back. In May, Governor Phil Murphy signed a law enabling taxpayers to pay their local taxes into charitable funds and get a 90 percent credit off their tax bill; the Trump administration rejected that workaround in August. State Senators Tom Kean (R-Union) and Troy Singleton (D-Moorestown) cosponsored pending legislation that would let taxpayers deduct from their state taxes donations to New Jersey charities. In Washington, Representative Chris Smith, a Republican from the 4th District, co-sponsored a bill that would make charitable donations deductible for all taxpayers, even those who don’t itemize. That could boost donations by $21.5 billion, according to some estimates.

“There are a lot of taxpayers who will not know what it means until they do their taxes in 2019,” says Czipo.
Back in Cape May, at the East Lynne Theater Company fundraising remains uncertain, but the theater itself had a better summer than expected, with its most successful season to date. Arsenic and Old Lace broke attendance records. “I think people need a laugh,” says Stahlhuth, the artistic director. “That’s what I heard the most.”

Tina Kelley wrote about New Jersey poets in the October issue. She lives in Maplewood.

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  1. Tina Kelley

    I am interested in hearing from non-profit folks who at the end of the year notice significant revenue changes for 2018. tinakelleywriter at gmail dot com