Trump's 2017 Tax Bill impacts Charities and Churches

Updated: Mar 21, 2018

Americans are extremely generous givers and tend to support causes they care about. We have shown we will rise up and care for the least of these over and over again but how much of our support is motivated by tax write-offs? Will our generosity be impacted if there were no financial incentives?

The new tax bill creates a potential funding dilemma for charities and churches because of the changes in the amount of deductions allowed but should churches be concerned?

The fact that there is a need for the 501c3 designation maybe a sign that the answer should be yes. Churches should be concerned.

If churches are automatically tax-exempt from paying taxes, why do they apply for a 501c3 designation from the Internal Revenue Service? Since 1954, the main reason churches have been applying for 501c3 status is because donors request it. Why?

Donors want peace of mind. They want to be assured the resources they are donating will be eligible for a tax write-off if they itemize their deductions.

Let me clarify several points here:

-Churches are automatically tax-exempt and do not need to apply for a 501c3 designation.

-Donors want to donate to a 501c3 organization to be able to write off their donations so churches apply to provide assurance to donors.

-Donors are only able to write-off their donations if they itemize their deductions. If the amount of their standard deductions exceed their itemized deductions, they won't use their donations to your church to file their taxes. Your 501c3 status is "just in case" assurance.

So even though it's not required, churches submit documentation to the IRS to get a stamp of approval saying they are legit religious organizations whose donations would be considered tax-deductible if needed.

This allowed donors to give - and in the event their itemized deductions were higher than their standard deduction - they could write off their donations! Hooray! Donors are happy. Churches are happy. Everybody's happy!

And then along came the tax bill. A $1.5 trillion tax overhaul package with a ton of provisions that everyone is still trying to figure out.

One thing is certainly sure, corporations and certain individuals are ecstatic about the tax cuts received in the 2017 Tax Cuts and Jobs Act (TCJA) but what are the implications for ministries and other charities?

Under the TCJA, the standard deduction is increased. This allows individuals to receive a higher tax refund without needing the tax write-offs received from donations. Because of this analysts expect 21 million taxpayers will stop taking a charitable deduction as a result of the reduced incentive to write off taxes in the new bill.

What motivates your donors?

If the financial benefits of donating are reduced, will your donors still give? Do you know why are they motivated to give? Can your vision for 2018 take a hit in donations and still succeed? If you've answered no to any of these questions now is the time for you to get out in front of donor decisions to position yourself as a viable option for your donors to continue their relationship with your organization.

Donors expect a return on investment.

Donors are looking for a proven track record of impact and more and more there is an increased need for churches to demonstrate the difference they are making in the community.

1) Make, measure and market impact. Be intentional about meeting the need of your community, measuring and documenting the change in the lives you make so you can market your impact to donors. Social proof is everything. Document what you are doing and let donors know because you gave, this is what we accomplished.

2) Strengthen existing donor relationships. Show your gratitude to the donors you have, market the impact their donors have made in the communities you serve and use this time to ask them to recommit to supporting you.

3) Ask for an increase for specific programs. I'm sure you've heard about corporations hiring more workers and giving $1,000 bonuses to their employees because they have more income as a result of the new tax bill. Some individual American taxpayers will be in similar situations and will have more disposable income as a result of the new tax law so technically you have an opportunity to encourage them to give more. Ask your existing donors if they are able to increase the amount of their contributions so you can get a new program started for the community or expand an existing program. Be specific about the need for the increase and always make, measure and market your impact.

4) Attract new donors. Leverage the goodwill you've created in the community because of the impact you're making and actively reach out to individuals and corporations that have a mutual interest in your work.