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  • Marty Zimmerman

Tax Reform - How Non-profits Can Succeed

Updated: Dec 6, 2023


Image of the U.S. Capitol building

Whatever your political beliefs, the passing of the new tax law leaves many non-profits concerned for the future. The way the bill is structured may provide sweeping changes to the non-profit industry. It is likely that there will still be a number of changes to the tax laws via waivers, court challenges, etc. However, the key factor as of right now is how the non-profit community will adjust.

Scary numbers are being thrown out in the media about the impact of this bill, including reports that 200,000 jobs will be eliminated and billions of dollars will no longer be donated to non-profits. Additionally, many non-profits are already feeling financially pinched due to reductions in federal grants that are driving some non-profits out of business and causing others to merge.

The reality is that we won’t know the long-term outcomes, but we can plan and be flexible in our approaches in order to mitigate these results.

Here are some of the changes you will see and how non-profits will have to adjust to remain viable in the future.

Change #1: Non-profits will see growing numbers and needs of people to serve – The larger the federal deficit grows, the more the federal government and states will need to justify spending cuts to programs on which the public depends. The government will then rely on more and more non-profits to fill the gaps.

Change #2: Non-profits will have to change their methods for garnering individual contributions – By doubling the standard deduction, 90% of Americans will have no tax incentive to give to non-profits. Since giving will no longer be a win-win situation, non-profits will need to take the following steps to augment this loss of income:

  • Push harder to maintain support from the wealthiest Americans who will be inundated with even more requests for support.

  • Create giving structures that provide a benefit to donors that is not related to tax-deductions (think of a membership approach, without calling it a membership).

  • Look for more support from areas other than individual contributions.

Change #3: There will be a ripple effect from the first two changes – As non-profits attempt to determine how they will address these changes and the growing needs, there will be a ripple effect throughout the industry. Here are the key changes you will see:

  • Newer non-profits will struggle longer as they are most reliant on individuals (many foundations require a minimum of three years in business to be eligible to apply).

  • Most non-profits will need to create earned income revenue streams if they haven’t already. There will be a plethora of new thrift stores, coffee shops, temp agencies, and other companies that will funnel profit into non-profits to offset the loss of individual support.

  • Grant applications to foundations and corporations will become more plentiful since the foundations are still required to give money. Applications for this funding will become even more competitive and the timing in which money will be granted will most likely increase because of the sheer volume of applications each foundation will receive.

  • Endowment asks will change because the estate tax is changing, so fewer bequests will go to non-profits.

So what can your non-profit do to succeed in this new environment?

Here are five ways that non-profits will succeed:

  1. Create a development plan that will address reducing reliance on individual giving and focus more on earned income and alternative revenue sources.

  2. Hire professional grant writers who know the foundations well and have a reputation that will help elevate your status in the applicant pool.

  3. Maximize the use of tax credits that are not related to the tax bill, such as the Colorado Childcare Contribution Credit or Denver Enterprise Zones.

  4. Expand efforts to build relationships with donors so that donors will give whether or not they receive any tax benefit.

  5. No matter what you do, diversify your revenue streams so that you can be prepared for additional changes that are still likely to come.

For more information, check out this tax bill summary from the National Council of Nonprofits.

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