OK, so the new tax legislation means that lots of our donors won’t itemize charitable deductions any more. This will hurt – but how much? (See blog post below).
Your state could help lessen the impact by creating a community foundation tax credit. Five states already offer a tax credit of some type for certain gifts to community foundations. The availability of a credit on state taxes might help offset the changes in federal tax law.
How does this work? In a typical case, a donor would receive a credit on their state income taxes equal to some percentage of their gift (usually to an endowment fund). In Kentucky, for example, the credit is equal to 20% of a qualified gift.
Will such a credit cost your state money? Yes, it will. But offsetting that is that fact that the charitable organizations that your community foundation supports typically are also funded by your state government. Social service, community development, education and arts and culture organizations often receive state grants to support their work. If a state tax credit attracts donations that increase your grantmaking, you will often be helping organizations working to achieve goals deemed important by your state policymakers.
Time will tell what effect the new federal tax legislation will have on the gifts received by community foundations. But the next time you talk with one of your state legislators (or your governor, for that matter), ask them to consider a community foundation tax credit.
Special Note: A big note of thanks to Kristi Knous of the Community Foundation of Greater Des Moines. Kristi made some suggestions to my description of the tax credit for Montana and North Dakota – the research now on the website reflects those changes. Thanks, Kristi!
And let me add another note of thanks. Judy Sjostedt, executive director of the Parkersburg Area Community Foundation, has also pointed out that West Virginia has a tax credit that is utilized by some community foundations in that state. The research report has been adjusted accordingly. Thanks, Judy!