Tax Law Implications for Nonprofits

Is It Good, Bad, or Ugly? Experts Spar Over Tax Law Implications for Nonprofits. This article covers varying points of view on tax law for nonprofit.
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Even as giving trends continue to set record highs, some experts believe that the Trump administration’s 2017 tax cuts will result in billions lost in charitable giving for 2018.

According to a recent report published by USA Today, studies conducted by the Association of Fundraising Professionals predict the damage to charities nationally will be $13 billion to $20 billion in 2018, or a loss of 3-5% sector-wide. Charitable giving totaled about $410 billion in 2017 according to Giving USA, a nonprofit data center that produces national annual giving reports.

Why the gloomy outlook? The 2017 Tax Cuts and Jobs Act increased the standard deduction that people may take on their federal tax returns and limited to $10,000 the amount of state income, sales, and property taxes that could be deducted. The end result, according to the Tax Policy Center, is that about 16 million returns will itemize deductions for charitable gifts compared with 37 million in 2016.

That, in turn, leads some to believe that donors will be less likely to give, since they won’t get the tax break they once did. This could trigger a tremendous loss in not only the number of individuals who give, but also the overall amount of donations received by nonprofit organizations. It’s a trend, according to Giving USA, that the data has been showing for some time.

Household giving dropped 11% from 2000 to 2014, but the overall amount of giving has continued to grow because of large gifts and bequests made by individuals and corporations. In 2017, giving by bequest increased 2.3%, by foundations 6%, and by corporations 8% (Giving USA, 2017 Annual Report). Foundation giving has now increased for seven consecutive years.

The idea of donors giving less because of a lost tax incentive, however, doesn’t hold water for some. The 2017 Global Trends in Giving report released by Nonprofit Tech for Good notes that at least 45% of donors surveyed in their most recent report make gifts outside of their country of residence; giving despite the fact that they will receive no tax incentive. GuideStar confirms through their own research that donors are more concerned with the impact of their gift than whether or not they will receive a tax credit for giving.

Despite trends for individual giving 2018, some nonprofits actually expect to see an increase in revenue as a result of the deeply reduced corporate tax rate. Indeed, outdoor clothing retailer Patagonia announced in December their plans to donate $10 million in tax savings to “green” nonprofit organizations. The nonprofit ecosystem has traditionally trended slightly behind the market, with increased corporate profits translating into increased giving to many nonprofit organizations, or increased individual giving from workers employed by profitable corporations.

“Donors give to you because they see you as the catalyst for the change they want to see in the world,” writes Barbara O’Reilly, CFRE, a 25-year fundraising veteran and contributing writer for the GuideStar blog. “Fluctuations in the stock market, politics, and in our tax structures are factors we can’t ignore. But they only underscore the importance of honoring the motivations and values of our donors.”

The verdict? It’s ugly, at least for the moment. We’ll soon know if individual giving decreased and if corporate giving comes to the rescue. For the moment, however, nonprofit organizations might be best served by tightening up development infrastructure, ensuring that fundraising teams are nimble, giving technology is accessible, and donor communication is intentional.

“With the right mindset to adapt to a changing philanthropy landscape for the long haul,” writes O’Reilly, “we head into 2019 awake, nimble, and ready!”


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