New Tax Law’s Impact on University Donations

December 6, 2018

Universities rely on donations to help fund operating costs and make capital improvements, like building new libraries or classrooms. But does the new Tax Cuts and Jobs Act hamper universities’ efforts to benefit from the generosity of their alumni and others? Here’s how the new tax law may have an impact on university donations.

Non-itemizing Charitable Giving

The new tax law doubles the standard deduction in 2018 – from $6,350 to $12,000 for individual taxpayers, and from $12,700 to $24,000 for married couples filing jointly. That means a lot more taxpayers won’t be itemizing their charitable donations going forward. They simply won’t be giving enough to exceed the standard deduction.

The higher standard deduction could be a big problem for universities, most of which are nonprofits that count on charitable contributions to make ends meet. Some experts estimate that charitable giving could be down as much as five percent this year over last. Universities may have to find other ways of generating income, like raising tuition, keeping salaries flat, or postponing building projects.

Donations and Sports Tickets

Another way the new tax law affects university finances is in donations tied to ticket sales. Quite a few universities require season ticket holders to make a donation to the university, often many hundreds of dollars worth, in order to get tickets. This is what amounts to a licensing fee that typically applies to the two highest revenue college sports – football and men’s basketball.

Taxpayers used to be able to deduct up to 80 percent of donations they’re required to make to buy sports tickets. The new tax law eliminates that deduction entirely. Some schools actually made more money from these gifts than they did from ticket sales or television revenue. In turn, they used the donations to support other sports in their athletic programs or their university budgets generally.

Universities that consistently fill their stadiums and arenas probably won’t have to worry about losing this income stream. But many other schools will likely suffer. They may need to raise ticket prices, cut some sports from their programs, or raise tuition to close the budget gap.

Excise Taxes To Boot

The new tax law also requires tax-exempt organizations, like universities, to pay an excise tax on the top five earners who make more than $1 million a year. That tax equates to 21 percent on every dollar over the $1 million mark.

For many schools, the highest paid employees are coaches, athletic directors, and administrators. While it’s been suggested that public schools may be exempt from the tax, the tax hit to eligible schools easily could be in the millions of dollars. Can alumni and other donors be expected to make up the difference? Or will students be asked to subsidize the salaries of the these highly paid professionals? The answer will be in the numbers come tax time.

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