This is Anthony Byrnes Opening the Curtain on LA Theater for KCRW.
Okay, the holidays are almost upon us. What better time to talk about nonprofit theaters and the tax code?
No seriously, this is a big deal and a big change.
The current GOP tax plan could have really major consequences for LA theaters, and charities in general. But to understand how and why, we need to understand two basic ideas and then what’s changing.
The first idea is that we've decided, as a nation, that charitable giving is part of the tax code -- meaning if you give to charity you get a tax break. For most folks that means you get to deduct roughly 25 to 30 percent of the amount you donated to a theater or any other charity from your tax bill. So if you give $100 you get to deduct $25.
Hopefully, that's not the only reason you're giving but that tax deduction is another benefit of your gift.
That's how it works now.
Basic idea two, donations are a big deal for theater companies locally and nationally. Theater companies get their income from two big buckets: earned income from things like ticket sales and contributed income, which as its name suggests, are all those contributions or donations.
The ratio between earned and contributed income for theaters runs about 50/50 in the latest national survey. Meaning, roughly, that half of a theater company's money comes from ticket sales and half comes from donations.
So theaters really rely on donors. One way to think about this is that your ticket price is only covering half of the cost of the show you're seeing. The other half is being covered by a donor.
So, right now we've got a tax code that allows you to deduct a donation to a nonprofit theater and we have theaters that rely on donations for about half their revenue.
Okay, here's where the GOP tax plan comes in. This gets a little wonky but stay with me.
Remember how if you give $100 you get to deduct $25? Well, that only applies if you itemize your deductions and don't take the standard deduction. The tax plan both the House and Senate have approved doubles the standard deduction... so far fewer people have any reason to itemize in the first place. That means the tax incentive to donate would be gone for most households. In fact, reporting by our fine colleagues at NPR suggests as few as five percent of tax filers might still use that charitable-giving tax write-off.
That's why I’m calling this a big deal, especially for a small theater company that may not have a donor who fits the new profile of a wealthy person itemizing deductions. Suddenly one of the benefits and arguments for making a donation -- that it's tax deductible -- is off the table.
Research done at Indiana University suggests that looking more broadly, this tax plan could reduce charitable giving by $13 billion annually.
What happens to a theater company or an arts institution or any charity when suddenly that charitable donation is no longer tax deductible for the majority of donors? Will people still give?
That's the big question buried inside this tax proposal and it's a question a lot of theater companies can't afford to ask.
This is Anthony Byrnes Opening the Curtain on LA Theater for KCRW.
Photo by Ken Teegardin