The Tax Cuts and Jobs Act of 2017 has been passed. Now, we must figure out what’s in it!
Over the next several months, experts will digest the new law, explain the changes that have been made and forecast the impact these changes may have on the nonprofit sector. From tax rate revisions for individuals and businesses to modifications of the standard deduction, and the deductions for state and local taxes and mortgage interest, there is a lot of content that needs to be studied before predicting the impact on charitable giving.
Many nonprofit executives, for instance, worry that doubling the standard deduction will serve as a disincentive for individuals to file itemized returns, thus negatively impacting giving by individuals. We will see. In 1986, fundraisers said that the tax reforms then would cripple charitable giving for years to come. While there was, in fact, a bump down in giving, it lasted only a year—and many donors accelerated their giving in 1986 in anticipation of the upcoming changes.
We know that individual giving is driven more by the economy and equity markets than by tax deductions. With that said, will the economic growth we have experienced over the last few years continue under the new plan? Who knows?
The business community was the real winner in the tax reforms. What will businesses and corporations do with their windfall? Will they increase their commitment to charities, invest in expansion and jobs or take the money and run? We can hope, at least, that businesses will step up to the plate and use their new-found resources to expand their investment in education, healthcare, social services and the environment. But, who knows?
The truth is that no one knows the answers to these questions. And that is the problem. Because the one thing we do know is that donors do not respond well during times of uncertainty.
As we study the law and identify its many tax incentives and disincentives, every nonprofit should be laser-focused on its donors. Your number one priority right now is to preserve your base of support. Communicate frequently with your donors. Keep them engaged and committed to your cause. We will all watch with great interest as the implications of the tax reforms become clear, but in the meantime, let’s consider this to be an opportunity not an obstacle.
To keep our clients and friends up to date, we created the following snapshot of the major changes introduced by the new tax plan. We hope you find it useful!