As revenue streams become less predictable, it is essential for nonprofit organizations to reinforce their long-term strategic planning.
A recent report from the Lilly Family School of Philanthropy at Indiana University examines how a combination of new incentives and limitations in the One Big Beautiful Bill (OBBB) may affect the amount of giving and the makeup of donors, reshaping the donation outlook.
The analysis estimates a net decline of approximately $5.7 billion in annual charitable giving, despite an increase in the number of donors.
Fluctuations in giving may also occur as high-net-worth individuals and corporations concentrate donations in certain years to optimize tax benefits, resulting in income variation year over year.
Changes in the tax code
A beneficial change for philanthropic organizations is the OBBB’s introduction of a universal charitable deduction for non-itemizers. Since nearly 90% of taxpayers do not itemize, this policy expands tax incentives to a much broader population and is expected to generate up to $4.4 billion in additional giving and add 6 million to 8.7 million new donors.
However, this increase is outweighed by several policies that reduce incentives for higher-income and corporate donors, who contribute a big part of total giving. The report estimates that the 35% cap on deductions for top earners will decrease giving by about $6.1 billion, while a 0.5% floor on itemized deductions could reduce giving by another $2.4 billion. The report says that on the corporate side, a new 1% minimum threshold for deductible giving could lower contributions by approximately $1.6 billion as many companies lose tax incentives for smaller gifts.
Different scenarios for philanthropic organizations
The OBBB could also create a shift in giving patterns across different donor segments. This chart presents RSM estimates of the primary policy changes:
Source: RSM US, CCS Fundraising, Lilly Family School of Philanthropy
In addition to the impact of the OBBB, economic pressures may significantly affect small-dollar donors. Rising geopolitical tensions might lead to elevated global oil prices, thereby increasing costs for households. Such inflationary trends can reduce disposable income among lower- and middle-income donors, potentially counterbalancing advantages offered by policies such as the new universal charitable deduction.
To learn more about nonprofit organizations, visit RSM’s nonprofit services page.
The takeaway
The OBBB may have a significant impact on philanthropy. Nonprofits should prioritize building and fostering donor relationships, educating supporters on the tax implications of giving, and consistently reinforcing the organization’s impact and overall value proposition.
