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The headlines suggest impending doom for churches:
This is not the first time that changes in tax laws have resulted in such dire predictions. In 1981, the New York Times published this headline: “New Tax Law is Said to Endanger Billions of Gifts to Private Groups.” Fortunately for the nonprofit sector, that predication was wrong: gifts to charity over the next three years actually increased!
The long-term impact on philanthropy of the Tax Cuts and Jobs Act of 2017 (TCJA) remains unclear. However, a strategic giving summit, led by Robert Sharpe of the Sharpe Group, highlighted new opportunities for donors made possible by the new law. Also, Sharpe suggested several strategies to grow giving to compensate for changes in the law. Here is an overview of Sharpe’s perspective on the law and the most effective ways to give going forward.
First, the reality. The new law was the most comprehensive revision in the tax code in over 30 years. The changes included a doubling of the standard deduction and a reduction in the mortgage interest and state/local tax deductions. Also, the cap on cash gifts was raised from 50% of Adjusted Gross Income (AGI) to 60%. Limits on deductions for high income donors were suspended until 2026 and home equity interest deductions were eliminated. As a result, it is expected that half of the people who itemized their deductions in 2017 will not itemize in 2018. However, high income donors who will continue to itemize may find expanded opportunities and incentives for larger charitable gifts.
Sharpe suggested three strategies: bunching, boosting and bypassing.
Bunching refers to donors making charitable contributions every other year. The every-other-year strategy enables donors to bunch two years of giving into one allowing them to itemize in the year their gifts were given. As an alternative, donors can contribute to a donor-advised fund (DAF) every other year and give ½ to the church each year. This strategy helps the church’s cash flow but can skew income if the church is not aware of the donor’s intentions. Some of your donors may have done this last December. You should review your 2017/2018 giving, especially among your larger donors, to see if they may be using a bunching strategy already.
Boosting is most applicable to capital campaigns. Some high capacity donors may choose to make asset gifts that boost them to itemizer status for a number of years. Donors choosing this option lock in current market values, bypass capital gains taxes, and save a substantial amount on state and federal taxes. Boosting makes sense for donors who have highly appreciated assets that pay minimal dividends and who want to make a larger gift to a capital campaign.
Bypassing is the third way to take advantage of the changes in the tax law. Donors can enjoy a “deduction equivalent” by making gifts that bypass their income stream. The most common form of bypassing is the IRA rollover provision in the tax code. People age 70 ½ and older who have IRAs are required to take a yearly minimum distribution (RMD) that is taxable as ordinary income. These people are now able to make a yearly gift of up to $100,000 directly from their IRAs to churches and charities. This gift counts as their RMD, avoids the taxes, and reduces their AGI on which many other deductions are based. Although the IRA rollover provision predates the new tax law, its importance has been amplified by recent changes and by the increasing number of Boomers becoming eligible.
Finally, Estate and Gift Tax laws remain essentially unchanged. However, by doubling the exemption amount ($11.18 million per individual and $22.36 million for married couples in 2018) and indexing it for inflation, the TCJA eliminated federal estate taxes for 99.9% of Americans. For some perspective on the scope of this change, the exemption was $600,000 as recently as 2000. As a result, it is likely more discretionary assets will remain in the typical estate. Surveys show that donors with such increased assets probably will split the tax savings between family and charity.
Too many church leaders are operating under the assumption that the TCJA will have a negative impact on giving. Robert Sharpe reminded us that the “sky has never fallen” except during major economic downturns. It is clear the opportunities made possible by the new law outweigh the threats created by it. Churches need to tell that good news in order to enhance their ability to proclaim THE Good News!
Join two of the most knowledgeable leaders in church stewardship, Joel Mikell (Horizons Stewardship) and Doug Turner (Culture of Ready) for a free webinar entitled, The One. The Few. The Many. On Thursday, November 8, 2018 at 11AM ET/8AM PT, these industry experts will discuss how a one-size-fits-all approach to generosity may be negatively impacting your church. The webinar will address how to develop distinct approaches for three important groups within every church.
The One: a small percentage of individuals who process giving in a highly relational setting. You’ll learn strategies for developing a disciipleship approach for those who have capacity to become the financial leaders in your church.
The Few: a core group that tends to live out their faith in community. You will learn ways to create safe spaces for “the few” to take risks and grow in the grace of giving.
The Many: the largest group in any church that contributes very little financial income. You will learn how to engage this group and help them engage in the generosity journey.
It is a source of angst for many pastors: a forecast of inclement weather scheduled to hit on a Saturday night or Sunday morning. Whether heavy snow, ice, hurricanes, major storms or brutal cold temperatures, pastors have to make the decision of whether to cancel church services entirely or hold worship for the faithful few who will brave the elements regardless of the forecast. The angst is not just about what canceling services will do to the annual attendance figures or preaching a sermon (that took 15 hours to prepare) to a much smaller crowd. Rather, the angst typically centers on church giving, or the lack thereof.
When weather negatively impacts attendance, the church may face a financial crunch without that week’s regular offering. The impact on the budget may be felt for months as the church tries to “catch up.” And if bad weather hits on more than one weekend, the effect is multiplied.
Pastor Aaron had not canceled worship services for over twenty years. There was no snow deep enough or temperature too low to keep him away from church on Sundays. As lead pastor at St. Paul’s UMC in Joplin, Missouri, a multi-campus church with 1,000 average Sunday attendance, he was willing to preach to 10 people if they were willing to come out. But last winter he faced a forecast that even he could not overcome. Inches of ice falling from Saturday evening into Sunday afternoon were predicted. A mandatory order was issued for people to stay off the roads. Church was canceled. Like many pastors who faced the same wintry weather, Pastor Aaron was concerned about the impact of canceling services on church giving.
It all started a year earlier when the church went through Horizons’ “Stewardship Discovery” program. We reviewed data, met with staff and ministry leaders, and had conversations with financial supporters. Through the Stewardship Discovery process, the church gained valuable insights into their unique culture and how it impacted church giving. The recommendations were accepted, and the church engaged a Horizons coach to assist with implementation.
When Pastor Aaron sent an email announcing church services were canceled, he reminded and encouraged members to make their offerings electronically. Because the church had developed effective electronic giving practices, people knew how to respond. Not only did the ice eventually melt, so did the stress about needing to ‘catch up’ or cut expenses.
It may be another twenty years before Pastor Aaron is forced to cancel worship again. But if inclement weather should strike, he won’t need to be anxious about church giving. Now, about that well-prepared sermon…that’s another story.
Rev. Aaron Brown is Lead Pastor of St. Paul’s United Methodist Church in Joplin, Missouri.