Nonprofits face new challenges as COVID-era tax deductions end

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In the season of giving, the Grinch has asserted himself in the halls of Congress when it comes to donating to nonprofits. 

Charities locally and across the country were hoping special pandemic-era deductions for charitable contributions would be extended. But those desires were dashed Tuesday when Congress and the White House announced a bipartisan budget deal that appears to have ended non-itemized charitable donations. That means that the estimated 90% of taxpayers who do not itemize will no longer receive even limited deductions for donations. 

Joan Gustafson, external affairs officer for the Michigan Association of Nonprofits, said a preliminary review of a $1.66 trillion bipartisan budget deal did not appear to include an extension of the COVID-era charitable deductions.  

That means after a two-year reprieve, the 2017 Tax Cuts and Jobs Act goes back into effect.  

The law changed the cap on standard deductions, effectively making charity donations tax deductible only if filers itemize their returns. 

But pandemic relief laws allowed a taxpayer filing as a single individual to deduct up to $300 and couples filing together to deduct up to $600 in charitable in 2020 and 2021 without having to itemize. The tax policy is referred to as a Universal Charitable Donation. 

The Trump-era act had an impact on charitable giving when it went into effect in 2018. The Tax Policy Center, citing a report by the Urban-Brookings Tax Policy Center, said that households claiming a charitable deduction went from 37 million to 16 million. A similar impact was felt in Michigan, said Gustafson. 

“For many people, it doesn’t make sense for them to itemize,” she said. “All of the sudden, writing your charitable deductions up or using them as a tax deduction was no longer possible. That did have an impact on charitable donations from people, particularly those in the middle income and the lower income.” 

Across the country, nonprofits received over $300 billion in 2021 from individual donors, according to the Giving USA Foundation. Individual donations were up 4.9% over 2020, the foundation data shows.  

When the tax laws went into effect in 2018 and 2019, the nation’s charities saw a drop in donations from individuals by tens of millions of dollars compared to donations in 2017. When the temporary charitable deduction was implemented in 2020 and 2021, the nation’s nonprofits saw individual donors pump their gifts back up to pre-Trump tax era giving.  

At the state level, the organization is pushing for the renewal of tax credits that were eliminated by the Snyder administration 11 years ago. Those credits were for those who donated to food banks, homeless shelters and community foundations.  

“They do help people who are in the lower- and middle-class section of the economy also be able to be philanthropists and not only give to their favorite charities or community foundations, but also get a little bit of tax break for it.” 

With a Democratic majority elected to both the state House and Senate and a Democratic governor, Gustafson said the organization expects bills to expand charitable giving to be introduced in the new legislative year. 

While government funds and grants are important, private donations make a difference. 

For example, the Lansing Area AIDS Network operates on a budget of about $1.3 million a year, but 5% to 10% of that is from donations. The rest is from federal and state grants that have significant restrictions on how, where and if the money can be spent on certain items. That small percentage of the budget, made up from individual and corporate donors, allows the organization to fill in gaps with clients where federal or state dollars wouldn’t or couldn’t.  

For example, when mpox — what major health organizations have renamed monkeypox — swept into Michigan last spring, individuals infected with it who were HIV-positive were able to get help through federal and state resources that were unavailable to those without HIV.  

That’s where a “generous” donation from Lansing-based Grewal Law came into play, Kristina Schmidgall, executive director of the Lansing Area AIDS Network, said. The law firm’s gift provided the seed money to support people diagnosed with mpox who were not infected with HIV.  

The Grewal donation wasn’t needed in Ingham County, so LAAN expanded the areas covered and was able to assist several people, Schmidgall said. 

“We didn’t need that money here, thank God,” she said. “But we had it if we needed it.” 

Schmidgall, who started her new post as the executive director of LAAN just 18 months ago, said the economic turmoil, combined with public health concerns, means the organization is searching for ways to make giving easier and attract a younger crowd. She said LAAN is also considering creating more, but smaller, fundraising events like drag shows or concerts in the community. They’ve added online donations, monthly options and partnerships with for-profit ventures like Amazon Smile to push for donations.  

“Even when the organization buys something on Amazon, we get a donation from Amazon for it,” she said.  

It also meant applying for, and obtaining, a grant to begin to offer counseling services to the LGBTQ community. By providing those services, the organization can begin to bill insurance companies for payment.   

“We used to rely on a couple of large events a year — the AIDS Walk or the Red Ribbon Gala. But when COVID hit, those were not necessarily appropriate fundraising options. It really required us to rethink how we ask for donations, and how we diversify our funding.” 

 

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