Fundraising Musing Part III: What About Those Big Gifts -Timing Plays Incoming!
So, I wanted to continue my musings on the impact of the OBBBA charitable deduction changes (see here and here) on funddraising, and I don’t think I’m alone on that. My inbox is full of consultants, advisors, philanthropic news, and legal updates talking about what the nonprofit world can expect with these upcoming deduction changes starting in 2026 and how to prepare for them. Today’s inbox was no exception, and it was very timely because I wanted to think specifically about the larger gifts and big donors. My Chronicle of Philanthropy email includes an article entitled “Big Gifts and the New Tax Law: Boom Now, Bust Later?” The consensus is that the limitations on the charitable deductions for taxpayers who itemize
“are going to have a negative impact on giving,” but the full extent of the impact is hard to guess-timate.
The OBBBA limitations don’t come into play until 2026, so at least some advisors are predicting that some donors may accelerate large gifts into 2025 to avoid the impact of the law change. The Chronicle article cites a study by Mark Ottoni-Whilhelm at IU Indianapolis demonstrating that donors reacted similarly in the wake of TCJA’s changes, with a spike in giving prior to the TCJA’s effective date. An anticipated 2025 timing play puts a premium on an educated and active fundraising staff and legal advisors, who are going to have to be out there quickly in 3Q and 4Q of 2025 to finalize those pending big gifts. I know that I am on tap to do at least two CLEs this fall on the topic (one on tax changes for non-tax lawyers, of which this will be a topic, and one specifically on charitable giving), so at least personally and anecdotally, this may be happening.
The article does point out two pitfalls that nonprofits should take into consideration. First, if a big 2025 charitable giving timing push happens, charities would be well advised to treat that as a blip for budgeting purposes as it won’t be replicated in 2026. The second consideration is that 2026 giving might actually decline from 2024 numbers because of the 2025 spike. The article cites to a Lilly Family School of Philanthropy at IU, which I mentioned previously in another post, as follows:
A research memo from the Lilly Family School of Philanthropy at Indiana University estimates that the 35 percent cap on gift deductions will decrease giving. The range of the estimated decrease is wide because it will depend on how “sensitive” donors are to the tax changes. “The lost charitable contributions range from approximately $2 billion to $8.2 billion,” the research memo says, noting that would be a decline of 1.6 percent to 6.3 percent in giving.
As I’ve spent the last few days thinking about all of this, I think the end impression I’m left with is donor confusion. When you think about all of the variables (the changed standard deduction, the change in the SALT cap, the itemized deduction’s floors and ceilings, the interaction between the ABL and the itemized charitable deduction, the delayed effective date, and state level charitable benefits), it is going to be very difficult for the average donor – even the average well-off donor with an accountant – to navigate the various permutations and combinations to figure out what plan is the most tax advantageous… accurately, anyway. Very large donors will likely have advisors crunching the numbers on this, but nonprofits would be well advised to get their large donors thinking about this now, as I don’t think this is something anyone’s going to want to work on between Christmas and New Year’s.
As a final thought – one of the things that I tell my students is that it is easy to underestimate the value of stability in the tax code. For a business, it is easier to strategically plan for 3, 5, and 10 year windows when you can take the tax code as a constant variable. That type of stability clearly has been a casualty, intended or otherwise, of budget battles post-1986 – and the chaos seems to have arrived full force in the charitable area.
Variably, eww