For nearly a quarter of U.S. taxpayers, donating money to charity used to come with the benefit of a tax deduction, but that's changed in the past year.
Now, as Giving Tuesday arrives — the Tuesday after Black Friday when people are encouraged to donate to charities — nonprofits are hoping charitable contributions won't decline in response to the sweeping changes to federal tax laws approved in late 2017.
“Some nonprofits have expressed concerns," said Melissa Levesque, vice president of development and stewardship at Coastal Community Foundation. “For us, this year and early next year is when we’ll find out if there are any implications on charitable giving."
A study by the Lilly Family School of Philanthropy at Indiana University concluded last year the tax law changes "would have a negative effect on charitable giving with giving decreasing between $4.9 and $13.1 billion." That would be a drop in donations of as much as 4.6 percent.
“Any drop impacts what we’re able to do in the community," said Greg Jones, coordinator at East Cooper Faith Network. "I hope people don’t give less."
Current federal tax law makes it much less likely that taxpayers will claim itemized deductions, which is how charitable gifts lower income-tax liabilities. The "Tax Cuts and Jobs Act" eliminated personal exemptions while nearly doubling standard deductions, a combination that will benefit some taxpayers while harming others.
The higher standard deductions are expected to result in fewer people claiming itemized deductions because it only makes sense to itemize if those deductions exceed the standard deduction. Without deductions, charitable contributions essentially become more expensive to make.
For example, in 2017 it would have cost a wealthy South Carolina resident as little as 54 cents to donate $1 to charity. That's because their itemized deductions could have cut their federal income tax bill by as much as 39.6 cents for each dollar donated and their South Carolina income tax by 7 cents.
For most other South Carolina taxpayers, who are in the 15 percent federal tax bracket, giving a tax-deductible dollar used to cost as little as 78 cents — if they itemized federal deductions, which most taxpayers in that income group do not do.
When returns are filed for 2018, between 90 percent and 95 percent of taxpayers are expected to claim the standard deduction.
“The tax legislation definitely changed the number of individuals who itemize," said Levesque of the Coastal Community Foundation. “We have just encouraged everyone to be as philanthropic as their interests and values dictate."
Reforms may also affect Charleston's largest technology business. Blackbaud Inc. sells software that's designed in part to help generate donations to charitable groups. It also processes the bulk of Giving Tuesday donations.
A spokesman said Blackbaud couldn't speculate about the impact of tax laws, but "there is still a tremendous amount of upside in giving for our customers despite any changes to tax policy."
Tony Boor, chief financial officer, told investors during a conference call in late October that the Daniel Island company was keeping an eye on the effects of tax reform. He called the changes a "wild card" that may affect giving through the end of this year.
Blackbaud was more bullish about the prospects for Giving Tuesday, saying Monday that it expects "continued growth" in donations. It is a founding partner of the global day of giving movement, which began in 2012 and has grown by 500 percent since its inception, including an all-time high of $60.9 million in 2017.
"With the continued rise of mobile and social giving, #GivingTuesday could once again put up record-breaking numbers this year,” Steve MacLaughlin, vice president of data and analytics, said in a statement.
Denver Merrill, spokesman for Palmetto Goodwill, said gifts to the the worker-training organization are about the same as usual. Most people donate material goods to Goodwill rather than money, making its situation somewhat different. Merrill said a recent survey showed only about 3 percent of their donors give to the organization because of the possible tax benefit.
“It seems we’re right on target,” Merrill said.
The holidays are usually a good season for Goodwill; Merrill said donations roughly double during the last week of December.
But if donors are going to choose to stop giving for tax reasons, that might not happen until next year, Merrill said — after they have filed their returns under the new rules and notice the difference.