American churches and nonprofits are in for an even louder wake-up call in 2018 and beyond. It’s definitely time to start planning for the near future to keep your church or nonprofit solvent, especially if you are smaller in size and rely on donors who make less than $75,000 yearly.
Churches must begin to explore income alternatives with an expected decline in individual giving in 2018 from the pending tax reform plan, along with year-over-year declining church attendance in all mainline Protestant denominations and increasing numbers of individuals with no reported religious affiliation.
The source of concern is how the tax bill is expected to sharply reduce the number of taxpayers who qualify for the charitable tax deduction — a big driver of gifts to nonprofits. One study predicts that donations will fall by at least $13 billion, about 4.5 percent, next year. That decline is expected to be concentrated among gifts from the middle of the income scale. The richest Americans will mostly keep their ability to take the tax break.
The tax reform legislation that was just passed by Congress and signed into law by the President will present an unprecedented challenge to churches and nonprofits in light of charitable tax exemptions. In short, because of changes to the standard deductions, far fewer taxpayers and households (particularly those making less than $75,000) will itemize. That’s now the only way to take advantage of the charitable contributions deduction.
So unless your church or nonprofit relies heavily on donors in the top tax brackets, you need to diversify income sources.
If you rely on a large number of smaller donations from members or patrons who are in “the middle class,” you need to diversify income sources.
“To use your charitable contributions against your taxes, you must itemize your deductions. This means for it to make financial sense, the combined value of all your deductions would need to exceed the standard deductions for 2017: $12,700 for married couples, $9,350 for heads of households and $6,350 for single filers and married couples filing separately.”
We work with churches and nonprofits to help identify and engage with alternative income sources. Get in touch if you need help.