Puerto Rico Tax Change Boosts Donations

September 8, 2014       Patrick Sullivan      

A change in tax code in Puerto Rico resulted in a net $5 million increase in donations and almost 20,000 more residents taking a charitable deduction on their tax forms in 2011 compared to 2010. Those are some results from an analysis of the tax change conducted by the Flamboyan Foundation, with offices in San Juan, Puerto Rico and Washington, D.C.

The commonwealth’s treasury department ruled in 2011 that individuals could deduct 100 percent of charitable donations up to 50 percent of gross adjusted income. Puerto Rico’s tax rules now look similar to the U.S.’s, where 100 percent of cash contributions to most nonprofits, up to 50 percent of gross adjusted income, are deductible. Puerto Rico previously had a 3 percent of gross adjusted income floor and 15 percent cap on deductions.

“Flamboyan Foundation conducted the analysis to understand the impact of the new tax code, which was effective in 2011 for the first time,” said Executive Director Guiomar García Guerra, Ed.D. “We wanted to better understand how many taxpayers were taking the deduction for charitable giving and also how much is being donated. Flamboyan is interested in having base-line information on giving to be able to measure changes in the next few years.”

According to Geoff Plague, vice president of public policy at the Washington, D.C.-based Independent Sector, “Taxpayers are aware of the tax implications of their charitable giving decisions, and they give more, and more often, than they otherwise might when there are strong tax incentives to do so. That is the reason charitable organizations work so hard to preserve tax provisions that encourage giving, and to educate policymakers about the consequences of limiting those tax incentives.”

Puerto Rico saw big jumps in donations from some demographics between 2010 and 2011. Itemizers earning more than $150,000 increased their donation amounts collectively by 27 percent, or $6 million. Those earning between $25,000 and $50,000 increased their donation amounts by 7 percent, or $2.2 million.

However, that total was offset by decreases from those earning less than $25,000 (9 percent), between $50,000 and $75,000 (1 percent), between $75,000 and $100,000 (2 percent), and between $100,000 and $150,000 (8 percent). The net increase in donations was $5 million.

“It is very difficult to establish a trend with only two years of data,” said García Guerra. “Moreover, we have been going through an economic recession for the last eight years and that certainly influences any economic statistic.”

The increase in itemizers allowed for an analysis of donor demographics. Approximately 7 percent of married taxpayers deducted donations, double that of single taxpayers. Single women gave at a rate of 4.3 percent, compared to 2.8 percent of single men.

More than one-third (36 percent) reside in the island’s northeast metropolitan zone. Only about 2 percent of those taxpayers earning less $25,000 itemized for deductions, while 21 percent of those earning more than $150,000 did so. However, of the 47,000 itemizers, almost 30,000 earn less than $50,000 per year.

One-third of itemizers reported less than $250 in charitable deductions, and 50 percent claimed less than $1,000. The average donation was $2,760, and $3,500 for married couples filing jointly. In the U.S. in 2011, the average donation was $2,213.

García Guerra said Flamboyan is currently looking at 2012 data, and has partnered with the Indiana University Lilly Family School of Philanthropy to conduct a household survey to “gain a better understanding of individual giving, donor trends and areas of interest,” she said.