A New Era for Tax Policy: What Nonprofits Can Expect Under a Trump Administration

As the political landscape shifts with President Trump back in the White House and Republicans holding the majority in Congress, the practical implications for tax policy are significant. For not-for-profit organizations, these changes could bring both challenges and opportunities. What might this new tax regime look like? Let us look at some of the more likely scenarios.

One of the first items on the agenda is likely to be the extension of the TCJA provisions, many of which are set to expire at the end of 2025. This includes the 20% deduction on qualified business income, the increased estate tax exemption, the increased standard deduction, and the cap on state and local tax deductions.

Extending these provisions could mean continued benefits for individuals and corporations, but what does this mean for nonprofits?

Historically, tax incentives have played a crucial role in encouraging charitable donations. For example, the TCJA’s higher standard deduction reduced the number of taxpayers itemizing deductions, which in turn affected charitable giving. If these provisions are extended, nonprofits might continue to see reduced donations from middle-income donors who no longer find it beneficial to itemize.

One of the hallmark policies of the first Trump administration was the reduction in corporate tax rates. A renewed administration might push for further reductions; President Trump has signaled a desire to reduce the corporate tax rate from 21% to 20%, aiming to stimulate economic growth and investment.

While this could stimulate economic growth and potentially increase corporate profits, the impact on corporate philanthropy is less clear. On one hand, higher profits could lead to increased charitable contributions. On the other hand, corporations might prioritize reinvestment over philanthropy, especially if they face pressure to maximize shareholder returns.

Additionally, a lower corporate tax rate could also mean reduced government revenue, which might lead to cuts in public funding for nonprofits.

The Trump administration previously implemented tax cuts for individuals, and a continuation of this policy could see further adjustments to individual tax rates and brackets. While higher disposable income for individuals could increase charitable giving, changes in deductions and tax incentives could also affect the overall landscape of individual donations.

Additionally, President Trump’s campaign promises included exempting Social Security benefits from income tax and allowing deductions for personal auto loan interest. While these changes aim to provide relief to individuals, they could also lead to a reduction in federal revenue. This might result in budget cuts to social programs, increasing the demand for services provided by nonprofits with potentially fewer resources.

With a focus on reducing government spending, and the Elon Musk- and Vivek Ramaswamy-led DOGE (Department of Government Efficiency) about to take effect, it is a definite possibility there could be cuts to federal grants and funding programs for many nonprofits.

Reduced federal funding could in turn force nonprofits to seek alternative funding sources, increasing competition for private donations and grants. On the other hand, the Inflation Reduction Act of 2022 provided significant funding to the IRS for enforcement efforts.

A Republican-led government might seek to reduce this funding, which could affect the IRS’s ability to audit and regulate. For nonprofits, this could mean less scrutiny, but it also raises concerns about accountability and transparency within the sector.

A Trump administration with Republican control might continue the trend of deregulation, aiming to reduce the administrative burden on businesses and nonprofits alike. While reduced regulations could lower operational costs for nonprofits, it might also lead to less oversight and accountability, potentially affecting public trust and funding.

In addition, many organizations engage in environmental advocacy and sustainability initiatives. Changes in policy could shift funding priorities and necessitate a reevaluation of strategies to address climate change and environmental protection.

As we look ahead, it is clear that a Trump administration and Republican control of Congress could bring substantial changes to tax policy. For nonprofit organizations, the key will be to stay informed and to adapt.

While some changes might pose challenges, others could open new avenues for support and growth. By understanding the potential impacts and preparing accordingly, nonprofits can continue to thrive and fulfill their vital missions in this evolving landscape.