At first read, the Tax Cuts and Jobs Act, signed into law last December, seemed a death knoll for nonprofits – such as CASA of Los Angeles, where I serve as chief executive officer – that receive most of their funding from individuals.
Most of our individual donors share our vision for how L.A. County should treat children in foster care. Some give at specific and higher levels in order to reduce their taxes owed.
Our main fear on the Tax Cuts and Jobs Act was that the new law could cause donors to reduce their giving because they would have to reach a higher threshold in order to itemize – and therefore a charitable contribution might be less likely to relieve their tax burden. An individual would need total itemized deductions to exceed $12,000, up from $6,350, in order to itemize. Married couples would need deductions exceeding $24,000, up from $12,700.
Los Angeles County cannot handle a reduction in charitable giving. L.A. already counts itself among one of the few geographic locations where nonprofit philanthropy is a net exporter – meaning more charitable funds are donated by givers here to nonprofits outside of L.A. County than donated to local charitable causes, according to a study by the Center on Philanthropy and Public Policy at the USC School of Policy, Planning, and Development.
And support for the needs that nonprofits address in L.A. County – foster care, homelessness, mental health care, education, substance misuse, art, justice reform, and so many others – must continue to grow if we want to properly serve our most vulnerable citizens and lift families out of poverty.
After getting over our initial shock that this new law could adversely affect philanthropy, we began to talk with our supporters while learning more about the details of the new law. We shared as many news reports and articles as we could find about the new law, particularly those that would give donors information to make stronger, informed decision about their personal philanthropy.
Our takeaways include:
• Tax deductions simply do not matter for some. They give because of a charity’s mission, be that advocating for children who have experienced abuse or neglect as CASA/LA does, or work by other nonprofits on many other admirable local causes. Giving is a priority for them.
• For those who give at higher levels, the new law provides a perfect opportunity to look into a Donor-Advised Fund, a philanthropic vehicle that can create tax benefits.
• “Bunching” is a term new that became known to us through our research of this law. The idea is to give a bigger donation in year one, and nothing (or less) in year two. The bigger donation year allows a donor to benefit from itemizing in year one. This strategy must be well thought out with the support of a tax professional and the nonprofit so they can budget appropriately.
• Donors who are retired and 70½ or older might be able to transfer money from their IRA directly to a qualifying charity. Qualified charitable distributions can be a tax-efficient way of meeting the required minimum distribution and a “win-win” for the donor and the organization. Donors should always discuss the tax benefits of charitable giving with a financial planner or tax advisor. These professionals can answer questions about giving and help with Donor-Advised Funds.
Whatever your favorite cause, there is a nonprofit in L.A. County working on it that needs your financial support. Changing federal tax laws do not change the needs in our community and we can do better as a community in giving locally.
Wende Nichols-Julien is chief executive officer of CASA of Los Angeles