Current nonprofit sector research and recommendations for effective day-to-day practice from ASU faculty, staff, students, and the nonprofit and philanthropic community.
What we know: The new tax law’s influence on charitable giving is a topic of lively discussion, and multiple projections of negative impact have been made. Not everyone fears the effect of the change, with some believing it will put more cash into the economy and actually boost charitable giving. The nonprofit sector will not know the full implications until after year-end, but it is in the best interests of organizations to proactively consider the tax changes in their operations. The ASU Lodestar Center’s two Professionals in Residence, Pat Lewis and Anne Byrne, weigh in with their differing perspectives and advice for nonprofit organizations. For more information on the likely impact of the new tax law, click here.
There have been many very negative predictions on the impact of the new tax bill, with some sources projecting up to $20 billion less in charitable giving as a result of the increase to the standard deduction for taxpayers. By contrast, there are also enthusiastic advocates predicting that both businesses and individuals will have more money available and therefore charitable giving will stay the same or actually increase as a result of new tax policy and a robust economy. My colleague Pat Lewis is one, and she makes her case in the companion blog article here. Unfortunately, I do not share her optimism, but I do offer suggestions on how to respond to change.
The actual reality of the impact of the new tax policy on charitable giving is likely somewhere in between the two extremes above. It is too early to tell what the actual impact will be, but nonprofits should prepare accordingly.
We know Americans are more generous in supporting charitable causes and services than any other country. This generosity extends far beyond the incentive of a tax deduction and a decrease in an individual tax liability, but it would be ill advised not to anticipate some change in giving behavior with the new tax code. Here are some highlights on what is known:
- Research indicates charitable giving is responsive to tax policy changes, but the extent of influence on the amount of charitable giving is not firmly established.
- Middle-income donors are those who will likely not itemize their donations, and organizations that rely on these donors, such as human services and religious organizations, have reason to be concerned.
- Wealthier donors will continue to itemize deductions, and they are more likely to support higher education, the arts and cultural organizations. A higher limit on cash contributions (from 50 percent to 60 percent of adjusted gross income) may encourage an increase in giving for some.
- Changes to the estate tax removes the giving incentive for many with an expected result of a substantial decline in large estate gifts.
Much of the advice given to nonprofits on responding to the prospect of decreasing donations has focused on fundraising efforts and enhancing the effectiveness of donor relationships and campaigns. Calls to better communicate an organization’s mission impact and to update an organization’s case for support is common advice to nonprofits in reaction to the new tax code. This is a good advice, but a broader approach that seeks to actually increase impact and balance this with financial sustainability will serve organizations better in the long run.
Ultimately, nonprofits are in the business of serving a mission and impact is our bottom line. At times like these, it becomes particularly important to ensure your organization is having the mission impact intended and resources are appropriately directed to this impact. It is time to take stock of all of your activities, aligned with the resources required and available, to make sure your organization is spending wisely for maximum impact. This approach has been coined the “dual bottom-line” and the Sustainability Mindset, an effective organizational planning process, advocates the use of a matrix map to inform strategic decision making.
This is not a call for greater efficiency within nonprofits; instead it is a call for highly strategic information gathering and decision making to determine the best focus of effort and resources for maximum impact. Nonprofits must invest in programs and strategies that achieve outcomes and let go of those that do not. A clear emphasis on services with maximum impact and financial sustainability will serve organizations well, both in times of uncertainty like this or a robust fundraising environment.
At age 23, Anne Byrne was the founding executive director of Denver’s rape crisis center, an organization that continues to flourish today, over 28 years later. Byrne went on to build a nationally recognized, multi-site summer and after school tutoring program for inner city youth. With 25 years of experience as an executive director of emerging nonprofit organizations, Byrne brings valuable expertise and perspective to the Lodestar Center's "Ask the Nonprofit Specialists."