The reelection of Donald Trump as President and control of the U.S. Congress by Republicans are anticipated to usher in changes that could financially impact the not-for-profit sector. Whether and to what extent your organization will be affected will depend on your mission, funding sources and other factors. But in general, you may want to keep an eye on the following issues.
Exempt status of “terrorist supporting organizations”
On Nov. 21, 2024, the Republican-led House passed legislation that would enable the U.S. Treasury Department to revoke the tax-exempt status of nonprofit organizations that it claims support terrorism. Although the bill is unlikely to be taken up by the current Democratic-controlled Senate, it could potentially pass the Senate and be signed into law when Republicans take over in January 2025.
The Council on Foundations, Independent Sector, National Council of Nonprofits and United Philanthropy Forum have formally opposed the bill. They say it would give the Secretary of the Treasury unilateral discretion to designate nonprofits (including humanitarian charities and labor unions) as “terrorist supporting organizations” without having to share evidence of such activities. Accused nonprofits would be given 90 days to appeal any “terrorist supporting” designation.
Spending cuts and funding opportunities
President-Elect Trump’s campaign promises to slash spending could also affect funding availability for nonprofits that depend on federal grants and contracts. Making the situation more challenging, organizations that provide social and other essential services could experience more demand if vulnerable people lose food and housing assistance benefits. Environmental, social justice, civil liberties charities and organizations that prioritize diversity, equity and inclusion (DEI) initiatives also are expected to encounter fewer resources and increased government scrutiny.
On the other hand, certain faith-based organizations may receive greater support under the new administration. This could enable them to provide more assistance to such groups as the homeless, food-insecure and formerly incarcerated at the community level. Educational nonprofits whose programming aligns with Trump’s priorities — including school choice, STEM education and vocational training — could also receive new funding and support.
Tax cuts and extensions
Charitable donors who itemize deductions are expected to continue to be able to deduct contributions on their federal tax returns. However, the higher standard deduction under Trump’s Tax Cuts and Jobs Act (TCJA) that’s scheduled to expire after 2025 now is likely to be extended or made permanent. This would mean more taxpayers would continue to claim the standard deduction and, therefore, be ineligible to deduct charitable donations.
Congress is expected to extend or make permanent some other tax provisions that potentially could reduce financial incentives for charitable giving. For example, if the gift and estate tax exemption remains high (it’s scheduled to be almost $14 million per individual in 2025), wealthy individuals may be less inclined to donate money and assets to charity.
Possible tax law changes could also make charitable giving less attractive, such as a capital gains tax reduction. Currently, donating highly appreciated assets to charity enables donors to both save the tax they would have owed if they’d sold the assets and claim a charitable deduction for the assets’ fair market value.
Plan now
Nonprofit organizations that depend, even in small part, on federal funding or that have missions that make them vulnerable to political scrutiny should start planning now. And additional tax legislation could affect your ability to raise funds and fund programs.
You may qualify for new state, local and private foundation grants. Or we may be able to help you find other untapped sources of revenue and opportunities to cut expenses. Finally, if you at any time receive notice from the IRS or another government agency about an investigation into your finances or activities, contact us and legal counsel immediately.
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