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Federal Tax Reform and Nonprofits
U.S. House Ways and Means Committee Chairman Dave Camp (R-MI) recently released a proposal to reform the federal tax code. This would include many potential changes for nonprofits. The proposal has not been introduced as legislation and is unlikely to pass this year. However, it could be a starting point for a future discussion of federal tax reform. The N.C. Center for Nonprofits is providing this summary of key provisions for nonprofits in the proposal and of some concerns we have heard from charitable nonprofits in North Carolina.
- The proposal would only allow deductions for contributions over 2% of a taxpayer’s adjusted gross income and would cap deductions at 40% of adjusted gross income (down from the current 50% cap).
- Donors could make tax-deductible contributions through April 15 of the next year.
- It is estimated that 95% of taxpayers wouldn’t itemize under the proposal, so most taxpayers would have no tax incentive to make charitable contributions.
- According to a July 2014 report from the Tax Policy Center, this would discourage charitable contributions by increasing the after-tax cost of giving from 77 cents per dollar to 88 cents per dollar.
- Nonprofits are concerned that this proposal will lead to fewer and smaller contributions to the work of charitable nonprofits:
1. If 95% of taxpayers used the standard deduction, far fewer North Carolina taxpayers would have tax incentives to make charitable contributions. This would be compounded because the state tax credit for charitable contributions by non-itemizers was eliminated last year.
2. According to a 2011 Congressional Budget Office analysis, the 2% floor on deductions for charitable contributions would likely suppress charitable giving.
3. This would mean that fewer North Carolinians would have access to essential services provided by nonprofits. In 2012, 83% of North Carolina nonprofits experienced an increase in need for services, and 64% were unable to fully meet this demand.