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Guest Post: Tax Reform Implications for Christian Nonprofit Donations

After months of legislative talk and all kinds of speculation around the impending Tax Cuts and Jobs Act, it was finally passed late last month. This was the most comprehensive tax reform in 31 years. It has generated questions and even anxiety about its potential effect on the charitable community, including nonprofit Christian ministries. People are making projections about future support for nonprofits in 2018 and beyond. Most experts are predicting less giving overall—the debate is primarily “how much less.”

Though not a CPA, I’ve spent years in revenue growth leadership roles being responsible for keeping a watchful eye on “outside influences” affecting donor-supported organizations. My task has been to report back what I learn, recommend actions to take, and help others navigate potential whitewater ahead. I care deeply for the financial health of Christian ministries. As we begin this year with new tax laws going into effect and ministry leaders considering what, if anything, to do differently, here are some thoughts I hope will help.

First, some bad news

  • One provision many hoped for did not make it to the final stage. The Universal Charitable Deduction would have been an above-the-line deduction available to all individual taxpayers whether they itemized or not. It would have improved the incentive for more people to give.

  • While less than 30% of taxpayers nationwide typically itemize charitable deductions, that same group accounts for a whopping 77% of all charitable giving in the U.S. Due to the new standard deduction doubling and other changes, many experts are estimating the number of taxpayers itemizing charitable deductions will drop to between 5% and 11%. This could equate to a decrease in annual giving anywhere from $11 billion to $21 billion, primarily among middle-income households.
  • The Evangelical Council for Financial Accountability (ECFA) estimates that 60% of that reduction will impact faith-based ministries and churches, and cautions its members to plan for some of their donors to give 3-4% less than they did in 2016.
  • The estate tax exemption doubled, removing some incentive to give for some wealthier donors.

Now the good news

  • For context, we live and work in the most generous nation on earth.1 In calendar 2016, Americans donated a record $390 billion. Historically, Individual donors are the largest source of donations (72%), and the Religion sector receives the largest percentage of all giving (32%).2 This trend is expected to continue.

  • The lowering of individual and corporate tax rates provides many more dollars for potential charitable contributions from both individuals and corporations. We are already seeing evidence of 100+ corporations increasing their generosity to their employees.3
  • The investment market set new records multiple times in 2017 and (as of this writing) continues to do well. This kind of growth activity typically positions high-capacity donors and foundations for their continued giving of major gifts and grants
  • When the tax code was last changed in 1986, it also eliminated some incentives to give. Though some donors gave less, overall giving continued growing to record levels we enjoy today.

Motive behind the money

Knowing almost 30% of taxpayers itemized their charitable deductions does not automatically mean receiving a tax benefit was their chief motivator behind their giving. This is true especially, in my opinion, for people of faith. To be sure, the other 70% of taxpayers who donated 27% of donations have already been giving without receiving the tax benefit, because they did not itemize anyway.

In a 2017 study,4 though a majority of donors predicted there will be an overall drop in charitable giving if donations are no longer tax deductible,18% of donors surveyed felt overall giving will actually increase. The survey revealed this belief is held almost exclusively by donors under age 50, and particularly by donors under age 35! When asked if “their own giving” will rise if donations are no longer tax deductible, 22% believed it will, quadruple the number who answered similarly in a 2012 study. And these perceptions did not change based on whether or not donors itemize deductions on their tax returns. We will see what holds true this year.

There have always been “outside influences” we never have control over such as market crashes, natural disasters and tax reform. In times like this, I believe leaders of donor-supported organizations must maintain a biblical perspective about provision, while taking an honest look at what we can control and options we can take. And because it’s vital our mission has the funding it needs, never hesitate to ask for outside help.

Options for leaders to consider that often help grow donation revenues 

  • Trust God as the ultimate Source to provide where He will guide. Tell your teams you trust them to step up as needed as you possibly face new challenges together.

  • When it comes to trusting for the resources to fund your budget, be wise but avoid a scarcity mindset that breeds fear, and adopt an abundance mindset that fosters faith.
  • Rekindle the unique and compelling vision you have for your ministry to impact more lives for Jesus. Identify effective ways to consistently invite more stakeholders to participate in that vision with you.
  • Diversify your fundraising strategy beyond typical mailings. Employ new ways to go deeper with current donors, to engage more new donors, to re-engage more lapsed donors, and to identify and cultivate more people with high-capacity and inclination to give.

  • Revisit your efforts around improving pledge fulfillment. If necessary, ramp up those efforts appropriately to help more pledgers remain faithful in fulfilling their pledge.
  • Ask yourself if you are doing all you can, as the leader, to personally build deeper relationships with more donors who have capacity to give beyond what they are currently doing. Challenge your board members to step up in their areas of giftedness.

  • Take another look at how you fund-raise. Is it in compliance with the highest standards (ECFA for example) and biblically-based? Do you educate your donors about biblical concepts like generosity and stewardship year round, not just during fund drives?
  • Update your ministry profiles on 3rd party websites such as GuideStar and Charity Navigator, and maximize the opportunities in your IRS 990 form (your most public-facing document to potential donors and foundations) to clearly explain who you are and what you are accomplishing, using accurate statistics and compelling stories.

  • Ensure there are obvious demonstrations on your own website of accountability and transparency of your ministry finances, governance and mission impact.
  • Review your website donation pages for relevant content for donors. Minimize distractions and exit ramps on the actual “donate” page that might cause donors to hesitate or leave before actually giving.

     

      

Disclaimer: The opinions, representations, and statements made within this guest article are those of the author and not of Telios Law PLLC, and any liability with regard to infringement of intellectual property rights remains with them. Telios Law PLLC accepts no liability for any errors, omissions, or representations.

About Dusty Rhodes

Dusty Rhodes has served in fundraising leadership roles for over 25 years, as Senior Vice President / Chief Development Officer at WAY Media / WAY-FM, and currently as Senior Vice President and Partner with the fundraising and leadership consulting firm Elevation Growth Partners.

To contact Dusty, please email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 720-460-8877. www.ElevationGrowth.com

 

 

 

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1 Philanthropy Roundtable
2 Giving USA
3 USA Today, List of Companies That Paid Bonuses or Boosted Pay Since Tax Bill Passed, January 14, 2018  
4 Donor Mindset Study, Opinions 4 Good and Grey Matter Research, April 2017
Featured Images: "Dusty Rhodes" and "Elevation Growth Partners Logo."
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