Revisiting the 10 Tsunamis: Tax Reform

In 2015, I wrote 10 Tsunamis Impacting Ministries, which uncovers 10 challenges that will confront ministries across the country. As the founder of the largest church architecture firm, our team is on the forefront of watching them play out.

By reviewing a few of these “Tsunamis,” we’ll help you better understand some challenges you’re probably already facing and offer some “evacuation routes” to consider as you plan for the coming year. This week, we’ll look at the Tsunami of the Economy and Tax Reform.

There are a number of things at play beyond the proposed tax reform that recently passed the Senate. First, in October, a federal court in Wisconsin disallowed pastor’s housing allowances. This may result in an additional burden for the church anywhere from $10,000 – $20,000, or more. In some cases, up to 100% of ministers’ salaries have been designated as a housing allowance…but that option is disappearing before our eyes. This is now up to the circuit court of appeals and perhaps the Supreme Court, but we will likely see this ruling maintained.

What’s more, Minnesota, Pennsylvania, Washington, and Oregon have led the way in reducing and eliminating property tax exemptions for 501(c)3 organizations. This alone could be the death-blow to many churches. At best, it will be difficult for ministries to cover these additional costs through traditional funding sources.

Finally, as we review the proposed tax reform, the biggest item that will impact churches has to do with charitable deductions. These will disappear for the majority of Americans, as they will likely prefer the increased standard deduction. Charities across the board are deeply concerned that this tax reform could have a catastrophic effect on giving. In 2016 alone, Americans donated $282 billion to their favorite causes, churches, and social programs. Experts think charitable giving could take a substantial dip under the new structure of the standard deduction, which could reduce the services and benefits nonprofit organizations provide to communities.

These changes illustrate the need to preemptively plan for how you’re going to fund the ministry God has placed on your heart. One thing is for sure: as ministries around the country face these challenges for the first time, it will take new approaches to be successful.

Relying on your endowment, year-end giving, grants, or even giving through cash/checks is not going to cut it. It’s time to consider a big shift. Also, with only a few weeks left of this year (and perhaps under the current tax plan), it is important to sit down with major and mid-level donors to discuss how to best take advantage of current tax benefits.

As always, please subscribe, and don’t hesitate to reach out if you’d like to discuss how BGW or BGW Sustainable Solutions could serve your ministry.