New Congress and the Impact on Nonprofits

Now that 2025 is here, here are three key issues to watch in the new year as Republicans assume control of the national government. These developments could significantly impact nonprofits and fundraising:

• Proposed increases to taxes on endowments and foundation income. In 2017, Congress introduced the first excise tax (1.4%) on investment income for colleges and universities with endowments valued at $500,000 or more per student. Vice President-elect J.D. Vance has proposed raising this tax to 35%. Additionally, there have been discussions about increasing the excise tax on net foundation investments to as much as 20% (currently set at 1.39%).

• Increased scrutiny of donor-advised funds (DAFs). Policymakers are considering proposals to require DAFs to include a payout provision within 15 years. At present, donors can contribute to a DAF and claim an immediate tax deduction, but there is no requirement to distribute the funds to charities for many years. These potential changes could alter how DAFs operate.

• Legislation to encourage charitable giving. The charitable tax deduction has existed for over a century, but its influence has diminished since Congress expanded the standard deduction in 2017. Currently, only about 10% of taxpayers have enough itemized deductions (including charitable donations) to exceed the standard deduction threshold. As a result, tax incentives for charitable giving primarily benefit the wealthy. However, there is growing bipartisan support for creating a charitable deduction for non-itemizers, which could encourage more Americans to give. Fewer than half of Americans donate to charity today, down from two-thirds in 2008.

As the new congressional leadership sets its agenda, it will be fascinating to see how these changes might affect the nonprofit sector.