The significant increase in the standard deduction means fewer taxpayers will itemize deductions on their tax return. This is expected to have a significant impact on charitable giving. Analysts estimate the approximate one-third of taxpayers who currently itemize will reduce to less than 10 percent, leading to an expected reduction in giving estimated at six to nine percent per year. Nonprofit organizations should plan to acquire their revenues in different ways, such as bunched giving, which is a planning opportunity for donors to accumulate their donations over multiple years for a larger single donation instead of making consistent smaller annual gifts.
The estate tax exemption, which was almost doubled, reduces tax incentive for wealthy individuals who can now transfer more assets to their beneficiaries tax-free. This could result in a reduction in planned giving, also known as charitable bequests, that has traditionally assisted taxpayers with their estate planning strategies in order to minimize estate and gift tax.
The repeal of the healthcare mandate penalty could also impact organizations, as healthcare premium costs are expected to rise.
A positive change that creates an opportunity for charitable organizations is an increase in the charitable contribution deduction from 50 percent to 60 percent of adjusted gross income. Also, the limitation on itemized deductions was repealed. This means that individuals with high income who do itemize could now have more incentive to give higher amounts.
The theme is tax cuts and revenue cuts, which equal federal and state spending cuts. If states choose to conform to federal law, it could result in increased revenues from individual taxes, but reduced revenues from business taxes. If an organization receives a federal, state, or local grant, there may now be an impact on the way it receives revenue.
From a fundraising perspective, there may be fewer overall donors but increased donation amounts from wealthy donors. Organizations can combat some of the changes by coming up with more strategic fundraising plans and by engaging their donors. Board members can prepare for some of these changes by including relevant discussion topics for future board meetings, such as operational matters affected by the new tax reform, future policy risks and opportunities, and implementation of advocacy strategies with government, local media and potential funders.