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Tax law spurs a change in how people give to charities

The way that Tampa Bay residents donate to charities and nonprofits is evolving.

Last year’s tax reform is pushing many taxpayers to donate in bulk to accounts that can disperse money to organizations over several years instead of giving directly to those organizations annually, the customary pattern for years.

And Tampa Bay organizations that manage these bulk accounts are already seeing an uptick in gifts.

"This tax law basically made it really advantageous (for people) to front-load their contributions," said Ray Madoff, a Boston College professor who focuses on philanthropy and taxes.

Most people make donations on an annual basis because of the way the tax system is set up, Madoff said. And if they donate over a certain amount, they can get a tax write-off for those gifts. But the vast majority of donors — who give smaller amounts each year — don’t receive that benefit.

"There’s been a trend in our country which is that more and more charitable giving is being done by the super wealthy," Madoff said.

Before the tax reform that takes effect this year, taxpayers would only get a benefit from their charity if their itemized deductions for the year exceeded $6,350 for singles — $12,700 for married couples filing jointly. If their deductions were less than that, they could opt for the standard deduction, which gives them a fixed benefit. About 70 percent of taxpayers, Madoff said, took the standard deduction each year.

Related coverage: Here’s how the tax overhaul could affect homeowners in Tampa Bay

But the new tax law raises that standard deduction to just over $12,000 for single filers $24,000 for married filing jointly), meaning even fewer will get a tax break from their donations.

To get around this, many are turning to "donor-advised funds."

A donor-advised fund acts as a sort of bank account for money a consumer wants to set aside for charity. Consumers can make a large donation to it one year to get the tax benefits of exceeding the standard deduction and request that certain amounts be distributed to charities of their choice later.

For someone without any other deductions, for example, instead of giving $7,000 to a charity each year, a taxpayer could put $14,000 in an donor-advised fund, receive the tax benefit that year for exceeding $12,000 and still divvy that up by giving $7,000 to a charity that year and the next.

Tampa Bay donor-advised funds are already seeing an increase in donations.

The Tampa-based Community Foundation of Tampa Bay, which offers donor-advised funds, felt the impact in December after the tax law was signed. It received $5.5 million in donations to donor-advised funds, up 50 percent from December 2015, according to CEO Marlene Spalten.

"Certainly the tax changes have been an important part of that," Spalten said.

Related coverage: Here’s why you may want to file your taxes ASAP

The Pinellas Community Foundation also saw a 50 percent jump in donations at the end of 2017.

"This very much is related to the tax law," CEO Duggan Cooley said. "A couple accounting firms called us to do inquiries about setting up funds at the end of the year… and then the client called with their broker to start the fund."

While it’s still early, donor-advised funds are the only ones that appear to be flush with extra tax-law cash at the moment.

About 10 of Tampa Bay’s highest-grossing nonprofits contacted by the Tampa Bay Times said they had seen neither an increase nor a decrease in donations, and many said it’s still too early to tell.

Eckerd Connects, a child welfare organization, said its donations have remained steady recently and doesn’t expect to be significantly affected by the tax law.

"I think the way we’ll see change in the impact is folks who give under $5,000 or $10,000 per year," Margaret Adams, chief development officer, said. "We already saw in the last five years that donor retention is changing. All of us (nonprofits) are having to get a lot better at acquiring donors."

Others, such as the Gulf Coast Jewish Family & Community Services Inc., routinely get donations from donor-advised funds already.

"What we have found is that when people want to support our work, they will do so whether through a personal check or through a donor advised fund or alternative," Sandra Braham, CEO, said. "Our job is to tell our story, be good stewards of the resources donors give us, and nurture the relationship with the donor."

The tax law will likely have the greatest impact down the line on charities and nonprofits that rely on small individual donations each year, such as those that provide social services like food banks.

Conversely, those that rely on fewer, high-impact donations — hospitals and universities, for example — are less likely to be affected.

The University of South Florida Foundation also hasn’t seen a change in donations, saying it’s too early to tell. But CEO Joel Momberg indicated the tax change may turn into a positive for donations.

"What isn’t talked about often is that the standard deduction increase will actually give two thirds of the middle income taxpayers a higher return and more disposable income," Momberg said in a statement. "That coupled with the increased ability and incentive of the wealthiest donors to give more to nonprofits could actually increase donations in the coming years."

Contact this reporter at [email protected] or (727) 892-2249. Follow @malenacarollo.

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Tax law spurs a change in how people give to charities