Cuts in tax incentives
Legislation recently passed to reduce tax incentives for wealthy Americans making charitable donations to nonprofits has Michelle Rumreich worried.
Rumreich, the director of development for Charlotte County Habitat for Humanity, is concerned about where the organization will receive funding in the future.
“We’re really hoping the amount of donations we receive isn’t negatively affected,” she said. “It’s certainly troubling. I’d like to think that the donors of Charlotte County Habitat are giving for the right reasons.”
Charlotte County Habitat is a nonprofit Christian organization that uses volunteer labor and donations of money and materials to build simple, affordable, decent homes for deserving low-income families. The homes are sold to partner families at no profit, and are financed with zero-interest loans. Monthly mortgage payments by the homeowners are used to build more Habitat homes.
Carlos Varagas and his family is an example. Varagas received a Habitat home in Charlotte Harbor. That would not have been possible without donations.
“What I thought was impossible has become a reality,” Varagas said. “Never in my wildest dreams could I have imagined that I would be given the opportunity to own my own home.”
Habitat is not alone in its concerns. The legislation could affect large organizations such as the United Way and the Red Cross, as well as smaller nonprofits.
The reduction in itemized deductions will apply only to individuals making more than $250,000 and married couples making more than $300,000. For those affected, three cents of every dollar earned above the threshold will be reduced from the amount they are able to claim in their itemized deductions.
For example, if a married couple has an adjusted gross income of $500,000, that’s $200,000 above the threshold. Therefore, 3 percent of that $200,000 (or $6,000) will be reduced from the amount they can claim in their itemized deductions.
John Davidson, executive director at AMIKids Crossroads — which now serves as a group foster-home program, isn’t particularly worried about the reduction in tax incentives. He believes grassroots foundations like his are less susceptible to a reduction in funding.
“I don’t see us being directly affected,” Davidson said. “We receive donations in hundred-dollar increments, not thousands.”
Davidson said he was hesitant to use the word directly because Crossroads receives funding from the United Way, which does depend on large donations from wealthy contributors.
The limitations on tax deductions are part of an ongoing process to produce national revenue. Also known as the Pease Limitations, they come with a slight caveat — no itemized deductions can be reduced by more than 80 percent.
Charitable organizations may fear these changes in the tax codes inevitably will damage their organizations, but experts insist there is no evidence that limitations have reduced charitable giving in the past, citing a steady increase in charitable donations throughout the 1990s.
During the ’90s, the median income of American taxpayers increased by 24 percent, according to the Pew Research Institute. Over the past decade, however, the median income has declined by 28 percent.
Although tax incentives can play a role in motivating people to donate, Lynn Dorler, chief professional officer of the Boys & Girls Clubs of Charlotte County, believes most people are giving for the right reasons.
“I think people give to help kids, not themselves,” Dorler said. “Most people we receive donations from genuinely care. Let’s hope a few changes in taxes don’t affect the things that matter.”