Fiscal cliff law brings mixed news to charitable organizations
Charity leaders say they're relieved the tax law Congress passed on New Year's Day does not more severely limit the tax advantages of making donations.
The American Taxpayer Relief Act of 2012, which kept the country from going over the “fiscal cliff,” erases some uncertainty about tax rules that affect giving but still might impact charities and donors, the leaders said.
“There's some good in it and some bad in it for charities,” said Jack R. Owen, a tax lawyer for nonprofits who works with the Downtown firm Rhoades & Wodarczyk. “Congress gives with one hand and takes with the other.”
For most Americans, the law extended tax cuts that took effect during the past decade and delayed drastic budget cuts to government-funded programs. But it ended the 2 percentage point cut in Social Security payroll taxes that had been in place for two years, resulting in lower take-home pay for most workers.
Charities amount to a $1.4 trillion economic sector employing one of every 10 workers nationwide, said Scott B. Leff, associate director of the Bayer Center for Nonprofit Management at Robert Morris University in Moon.
“Basically, everyone in the country is affected by the services nonprofits offer,” Leff said. “It's not only the safety net agencies; it's the health system, the educational system, our arts and culture, our libraries, houses of worship.”
Leaders said it was unclear how much the cut in take-home pay for most workers would affect giving.
Jeffrey A. Lydenberg, board chairman for 2013 for the Partnership for Philanthropic Planning in Indianapolis, said the law takes guesswork out of exemptions and estate taxes.
“Now this isn't just temporary. We have certainty,” said Lydenberg, whose organization of 128 local councils and more than 10,000 members educates, sets standards and advises nonprofits and charities on estates and giving.
The law limits tax savings from itemized deductions as a person's income rises; above a certain level, donors may not deduct the full amount of their contribution.
“You're saying to donors, ‘We're going to make it less beneficial for you to support charities' at the time charities need your support more than ever,” said Jack Miller, vice president for development at Baptist Homes in Scott and a development consultant for Pittsburgh History & Landmarks Foundation.
Some said people will give, no matter what the tax rules say.
“Tax deductions for charitable giving are nice, but they're not the main motivator,” said Fay Morgan, executive director of North Hills Community Outreach in Hampton. “Maybe (donors) wouldn't support the opera without it, but most people understand you can't let a neighbor go hungry.”
The law enhanced tax incentives for businesses to contribute food to pantries, she said.
It raised the tax rate on the estates of the wealthy, from 35 percent to 40 percent on estates worth more than $5 million. Estates of smaller amounts, and for couples with a combined estate of up to $10.5 million, will be free of federal taxes, said Lydenberg.
“We know that the more money that stays in the estates of individuals, it's most likely we will get it,” said Diana Aviv, president of the Independent Sector in Washington, a coalition of about 600 charities, foundations and corporate giving programs.
Lydenberg noted, however, that studies show a small amount of nationwide charitable contributions comes from estates.
A Giving USA study by the Center on Philanthropy at Indiana University showed donations to charities totaled $298.4 billion in 2011, he said. Of that, $24.4 billion, or 8 percent, came from bequests. About 73 percent, or $217.8 billion, came from individuals.
Bill Zlatos is a staff writer for Trib Total Media.