Tuesday, September 2, 2008

How will the federal government change the tax deduction for donations?

Could donors lose the incentive of a tax-deductible donation? The Chronicle of Philanthropy published an article this week, Paying It Forward — and Back, that looks at upcoming changes that may occur in the tax code for nonprofit organizations.

With an estimated $44 billion in lost federal revenue due to tax deductions, legislators are taking a look at ways to get that back. This combined with increasing complaints of large universities and hospitals that are "business-like" with "lofty executive compensation", and with only 5 percent of $1 million gifts from 2001-2003 going to social service organizations, many are calling for something to be done. Some potential tactics that will be explored in 2009 include: going after large universities that "hoard" billion dollar endowments and do not have required payouts, creating a new tax category for universities and hospitals, changing the current deduction for donations to incentize people to donate to social service charities and taking a second look at the classification for who receives 501 (c) (3) status.

This could have enormous ramifications for nonprofit organizations, depending on what happens. Fortunately, the likelihood of the tax deduction for nonprofit donations being taken away is slim to none. This is certainly an issue all in the nonprofit world should keep an eye on.

You have to be a subscriber of the Chronicle to read the full article, if you are not a subscriber please email me for a PDF of the article.