April 17, 2017

Tax Day Is Nigh. Here's How Personal Taxes Affect Nonprofits.

A collection of Chronicle articles, opinion columns, and data projects

Richard White/Chronicle of Philanthropy

The charitable deduction, which grant makers and charity leaders recently visited Capitol Hill to defend, is the key that links nonprofits and personal income.

It is the piece of tax law that gives us a glimpse into the giving habits of Americans, boosts charitable giving, and more.

With personal-income-tax returns due to the Internal Revenue Service tomorrow, we collected these items from our archives about taxes and nonprofits.

What We've Learned About Giving From Tax Returns

Using anonymous data from personal tax returns nationwide, our "How America Gives 2014" special report found that lower- and middle-income donors give a larger share of their income to charity than do the wealthy. By combining that data set with data on the socioeconomic well-being of counties (based on housing costs, preschool attendance, internet access, and other factors), we also found that people in communities with high standards of living often give at a lower rate.

That's not to say that the wealthy aren't giving huge sums. The IRS says that the 400 Americans with the largest reported income in 2013 averaged about $33 million apiece in charitable giving. That's more than $12 billion as a group, or about 6 percent of the charitable-contribution deductions claimed by all taxpayers that year. 

The Impact of the Charitable Deduction

Does the deduction affect giving?

We looked at that question in 2011, when it was at the center of a political debate, and found that there's no simple answer. Economists said then that it did increase giving, but it also matters which class of donors you examine.

Specific changes to the charitable deduction — like capping it at a certain amount for individuals — could suppress giving for certain groups. One 2013 study estimated that lowering the deduction would reduce giving by $9 billion a year.

Earle Mack, a donor and businessman, wrote in 2013 that capping or cutting the charitable deduction could particularly hurt newer nonprofits: "People might be willing to keep giving to well-established institutions without a tax break, but they are not going to take the risk of supporting unproven programs."

Extending the Charitable Deduction

One popular proposal for increasing giving is to extend the deadline for deductible giving until the filing deadline (April 15 in most years). Eugene Steuerle, a senior fellow at the Urban Institute, argued in 2014 that "it would be among the most cost-efficient ways possible to increase giving." That same year the idea stalled in Congress.

Some observers want to extend more than just the deadline. Thomas Peters, chief executive of the Marin Community Foundation in California, wrote in 2014 that the charitable deduction should be made available to every taxpayer, not just those who itemize.

"If we believe that it is wise public policy to subsidize donations by individuals, why are we silent when this benefit is denied to the majority of taxpayers?" he asked.

Independent Sector also called for extending the charitable deduction to all taxpayers earlier this month, launching their "Giving100" campaign.

Accounting for Noncash Gifts

Donors who give art, electronics, cars, and other items, and the organizations that take them, could be in a tricky situation after tax day, depending on how each party values the contribution. We wrote about this and other challenges in accepting noncash gifts earlier this year.

Volunteering as Income

Tom Petri, then a Republican congressman from Wisconsin, wrote in 2013 that the tax code should more fairly reimburse volunteers who use their vehicles for good works. At issue was the amount of taxable income from reimbursement for travel expenses, which is counted as additional income for volunteers but not for employees using personal vehicles for work.

"Most Americans give their time and money out of altruism," Mr. Petri wrote. "But right now the tax code sends the message that such behavior is valued less than similar activity on the job.

Send an email to Cody Switzer.