The Dreaded Trump Tax Plan IS Coming

Image result for trump tax plan

I know everyone is scared. So many messages coming at us – how could we not be afraid for ourselves and/or the nonprofit sector with the dreaded Trump tax plan?

Well, I am here to tell you in a few words – don’t stress the unknown.  And guess what – the final tax bill that is bound to happen soon is STILL unknown.

If you are seeing nonprofit sector commentators making recommendations like donors should be fronting their gifts in 2017 to donor advised funds in anticipation of losing out on tax deductions in 2018 and beyond – my advice is to completely ignore it.

In fact, the way I am seeing things, the charitable income tax deduction may be one of the few deductions left intact and may be even more important in 2018 and beyond.

And, all of this talk about the negative impact on nonprofits of raising the standard deduction (because it may take some people out of being itemizers) is ludicrous! Those people who are barely itemizers are NOT your major gift donors.  They are the type of donors who will still send you a $50 or $100 a year annual check, regardless of the deduction.

So, don’t lose sleep over a tax law overhaul that is far from done and may end up benefiting the nonprofit sector.

See, that wasn’t so bad!

The Big Short(age of Donors)

It’s coming. The Big Short-age of Donors.Image result for the big short

Follow this blog, take my courses, hear my pitches. You will get the message.  This county is rapidly aging and so is your nonprofit donor base.

The Baby Boomers – the largest and wealthiest generation in U.S. history which has fueled insane growth in the nonprofit sector of over the last 20+ years – is moving into Planned Giving territory (that is the nice way to put getting old and/or dying).

This is truly bad news for most nonprofits (regardless of the fact that the overwhelming approach to dealing with one of the most obvious courses of action – Planned Giving – is to essentially to ignore it).

I finally watched the Big Short and I really related to the characters in the movie, in a stressful kind of way.  They all knew they were right (about the housing bubble). They all knew they made the right investment. Yet, they were almost all sunk financially because the system refused to admit there was a problem and it was taking too long for their profits to materialize.

So, here I am. Completely invested in planned giving for over 20 years. It is the right move – the nonprofit sector WILL experience a demographic nightmare that WILL be very painful – Planned Giving is an obvious need throughout the nonprofit world.  And, all I have seen is a once awesome job path completely disappear. Charities reducing investment in this area to barely anything.  Consultants not booming either. Is anyone besides the bigger, more successful programs investing properly in Planned Giving or even doing anything?

In other words, nonprofit decision makers – most likely CEOs and heads of development who are under pressure to keep their jobs today by raising today dollars – have decided that the short-term goal takes complete precedence over investing in long term planned gifts (which, when received are typically multiples of your largest donors’ lifetime giving – regardless of whether it’s known leadership donor or a $50 annual fund donor).

Here is another way to look at it.  In the subconscious or even right there in the conscious brain it is clear that it’s time for planned giving.  But, what good will huge future windfalls (via planned gifts) do you (the person under pressure now)?  Go for the $5,000 major gift now and don’t think about the $200,000 bequest (the average size for university bequest donors in FY16) or other planned gift options. Who cares if the right business decision is to actually talk to your donors about legacy giving? Your job is to keep your job today, and not make it easier for your replacement who’ll take credit for that planned gift the second you are gone!

I know this sounds like sour grapes but there is truly something akin to the Big Short going  on here.  Nonprofits – you are in trouble.  Your biggest and best donor classes are entering their 70s.  It doesn’t get better from here.  Younger potential donors might not have the same commitment or financial potential.  You might not even attract younger donors.  The least your organization can do is intelligently make the case to your aging donors that it is also time to think about a legacy gift. That’s all.

But it does take training, staffing, and actual budgets to get it done.  So, ask yourself this question: Am I going to do what is right for this organization in the long term or what’s right for me personally in the short term?

 

Time to worry about tax law changes yet?

blog pickProbably not.  It doesn’t seem that the President and Congress are about to do anything together.

Ok, but what if all of the Republicans actually get in line (or a few Democrats defect…like that’s going to happen!!)?

Any problems with the most recent tax proposal for non-profits?

Here is a quick overview of potential issues that might impact nonprofits:

  • Standard deduction would be increased to $12,000 for individual filers and $24,000 for married couples – I can tell you right now that this does not hurt charities whatsoever – maybe even helps.  All it means is that middle and lower middle class America have less incentive to itemize but that sector is not likely to reduce charitable giving over a few tax benefits or not.
  • Personal exemptions and many itemized deductions would be eliminated – the income tax deduction won’t be touched directly so you actually might find upper middle class and higher Americans looking for more deductions (i.e. charitable deduction or maybe new fangled schemes for deductions).  Probably a plus for nonprofits.
  • Estate tax, which now only applies to estates of more than $5.5 million per decedent (or $11 million per couple) would be entirely repealed – oh boy, it’s not happening.  I’ll believe it when I see it.  George Bush Jr. had the power and did “repeal” the estate tax but was it really a repeal?  Go ahead and mess around with the estate tax again – all good news for consultants and attorneys. Probably not an impact on nonprofits but we will have to wait and see what they really are doing.

There is other stuff in it – the rest of which doesn’t yet rise to be addressed in this blog – here is a link if you want to read more: https://www.forbes.com/sites/janetnovack/2017/09/29/trump-plan-delivers-massive-tax-cuts-to-the-1-and-sharp-kick-to-upper-middle-class/#2f10cd861099

If you have ever seen my presentations, you would know that I subscribe to the 2% rule.  Americans in general give away 2% of their disposable income/wealth each year, roughly equal to 2% of the economy/GDP (see Giving USA for more on those numbers).  Since these percentages are very consistent, year in, year out, regardless of tax law changes, you have to believe that if anything  happens, it is not likely to impact charitable giving (unless it increases or decreases Americans’ disposable wealth or the overall economy). Even the so-called estate tax repeal doesn’t frighten me, and will probably be replaced with something confusing that I’ll be speaking and writing about it for years.