The reelection of Donald Trump as President, combined with a Republican-controlled Congress, heralds important policy and legislative shifts that could significantly impact the nonprofit sector. Whether your organization will be affected — and to what extent — depends on your mission, funding sources, and other relevant factors.
However, as financial landscapes shift, issues such as tax incentives for donors, federal funding for programs, and potential regulation of charitable organizations are expected to take center stage. For nonprofits, especially those focused on social justice or diversity initiatives, these changes could mean new challenges as well as opportunities.
Here’s a breakdown of what’s on the horizon and how nonprofits should prepare.
The Exempt Status of “Terrorist Supporting Organizations”
One of the most contentious developments involves proposed legislation that would allow the U.S. Treasury Department to revoke the tax-exempt status of nonprofits it designates as “terrorist supporting organizations.”
On November 21, 2024, the Republican-led House passed this bill, though it hasn’t yet been taken up by the current Democratic-controlled Senate. However, with Republicans securing control of Congress come January 2025, this legislation could pass in the revised Senate and swiftly be signed into law.
The bill enables the Treasury Secretary to unilaterally classify nonprofits, including charities and labor unions, under this designation without providing evidence. Accused organizations would have 90 days to contest the designation. Industry groups like the Council on Foundations, Independent Sector, and National Council of Nonprofits strongly oppose this bill, claiming it threatens the principles of due process and could unjustly target organizations based on political leanings.
How Nonprofits Should Prepare
If your nonprofit engages with politically sensitive issues, it is crucial to review and document all financial activities rigorously. Transparent record-keeping and collaboration with legal counsel can act as safeguards against unwarranted accusations.
Spending Cuts and New Funding Opportunities
President Trump’s campaign promises include significant federal spending cuts, which could directly affect nonprofits reliant on government grants and contracts. Those organizations providing essential social services may find themselves in an increasingly tough spot. With cuts to food, housing, and other assistance programs, the need for nonprofit services could grow while funding simultaneously diminishes.
Nonprofits with missions in environmental preservation, civil liberties, and diversity, equity, and inclusion (DEI) may face additional hurdles due to stronger government scrutiny and reduced funding.
On the flip side, faith-based organizations could see increased financial and institutional support. This might result in more partnerships focused on outreach to vulnerable groups, such as the homeless and food-insecure populations. Similarly, nonprofits invested in educational programming — especially in STEM, vocational training, or school choice — may gain favor and receive grants aligned with the administration’s priorities.
How Nonprofits Should Prepare
Plan for potential reductions to federal funding streams by exploring alternative options like state-level grants or public-private partnerships. Engaging with private foundations and leveraging individual donor networks will be crucial in offsetting potential shortfalls. Climate-friendly funding strategies, such as demonstrating direct community impact, could attract more localized support.
Tax Cuts and Charitable Giving Trends
For nonprofit organizations, donor incentives like charitable giving deductions play a critical role in funding. These deductions allow itemizing taxpayers to claim their contributions, incentivizing generosity.
However, Trump’s tax policies, particularly the Tax Cuts and Jobs Act (TCJA), amplified the standard deduction, which is likely to be extended or made permanent. This shift pushed many taxpayers into opting for the standard deduction instead of itemizing, significantly reducing their eligibility for removing charitable contributions from their taxable income.
Further, tax law changes like maintaining the high gift and estate tax exemption (soon to exceed $14 million per individual by 2025) may reduce the motivation for high-net-worth donors to contribute. The potential for reduced capital gains tax rates could add another layer of challenge, making the donation of appreciated assets less appealing.
How Nonprofits Should Prepare
To address these changes, emphasize impact-driven communication to donors and explore alternative giving mechanisms such as donor-advised funds (DAFs) or corporate matching programs. Hosting events and increasing recognition for recurring donors could incentivize ongoing giving despite financial disincentives.
Planning for Nonprofit Resilience
Given these anticipated changes in Washington’s political climate, it is critical to start planning strategically now. Organizations relying on federal funding or positioned as politically vulnerable should take proactive steps to mitigate risk and identify new opportunities for growth.
At SD Mayer & Associates, we work alongside nonprofits to help them adapt to changing landscapes. If your organization needs assistance navigating these shifts, from finding untapped revenue sources to maximizing operational efficiency, we’re here to help. Contact us today to discuss strategies tailored to your mission and financial goals.
DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
