Weathering the Storm: How Nonprofits Can Thrive in Uncertain Times

Nonprofits are the backbone of our communities, providing essential support and services. But in turbulent economic times, their resilience is put to the test. This paper offers a roadmap for navigating challenges and seizing opportunities in turbulent times.

Among the approaches that can bolster financial resilience and safeguard organizational impact are diversifying revenue streams, managing finances and operations prudently, improving communication, and preparing for potential changes in the tax laws.

Diversifying Revenue Streams

In a volatile economy, it’s critical that organizations not depend too much on one source for their funding. Financial strategies such as these could help prevent that:

Expanding earned income
Nonprofits should explore opportunities to generate revenue through fee-based services, product sales, or social enterprises aligned with their missions. For instance, a health clinic might offer wellness workshops, or a food bank could establish a grocery store.

Cultivating corporate partnerships
Building strong relationships with corporations can yield significant funding, in-kind donations, or volunteer support. Collaborations may range from joint marketing campaigns to corporate sponsorships of specific programs.

Enhancing individual giving
Implementing robust donor retention and acquisition strategies, including planned giving and legacy gifts, can secure a steady stream of individual donations. Personalized communication, donor recognition events, and regular updates on organizational impact can strengthen donor relationships.

Government grants
Researching and applying for federal and local government grants can provide another source of funding, especially for programs addressing pressing social issues. Nonprofits should stay informed about government funding opportunities and cultivate relationships with government agencies to increase their chances of securing grants.

Crowdfunding
Leveraging online platforms is important for engaging a wider donor base and mobilizing support for specific projects or initiatives. Crowdfunding campaigns can be highly effective in generating excitement and raising funds for innovative projects.

Prudent Financial Management

In addition to exploring new revenue sources, nonprofits must also adopt sound financial management practices to ensure long-term sustainability. Some suggestions:

Budgetary discipline
Developing detailed budgets, closely tracking expenses, and implementing cost-saving measures are essential to maintain financial stability. Nonprofits should regularly review their budgets and make necessary adjustments to ensure they operate within their means.

Risk management
Identifying potential financial risks, such as economic downturns or regulatory changes, and developing contingency plans can mitigate unexpected challenges. Active risk assessment and strategic planning can safeguard financial health.

Financial forecasting
Using financial forecasting tools to project future revenue and expenses can inform strategic decision-making. By analyzing historical data and identifying trends, nonprofits can make informed decisions about resource allocation and budgeting.

Building financial reserves
Setting aside a portion of surplus funds can create a safety net for future uncertainties. Nonprofits should work to build a financial reserve that can cover operating expenses for several months, if not longer.

Investing in technology
Adopting technology solutions can streamline operations, improve efficiency, and reduce costs. By investing in technology, nonprofits can automate tasks, enhance communication, and optimize overall performance.

Enhancing Operational Efficiency

Another key strategy to help nonprofits weather economic storms is improving operational efficiency. This can be accomplished through:

Lean operations
Identifying and eliminating unnecessary processes or redundancies can optimize resource allocation. Streamlining operations can reduce costs and improve efficiency.

Volunteer engagement
Leveraging volunteer support can significantly reduce labor costs and increase capacity. By effectively managing volunteers and providing meaningful opportunities, nonprofits can maximize their impact.

Strategic partnerships
Collaborating with other nonprofits or organizations can share resources, reduce overhead, and expand impact. By forming strategic partnerships, nonprofits can pool their resources and achieve greater impact.

Data-driven decision-making
Using data analytics to inform strategic decisions can improve program effectiveness and resource allocation. By analyzing data on program outcomes, donor behavior, and operational performance, nonprofits can make data-driven decisions that lead to better results.

Strong Communication and Advocacy

Nonprofits must also communicate transparently and advocate for their needs to maintain stakeholder support with strategies such as:

Transparent communication
Maintaining open and honest communication with donors, volunteers, and stakeholders can foster trust and support. Regular communication, such as newsletters, social media updates, and impact reports, can keep stakeholders informed and engaged.

Impact measurement
Quantifying and communicating the impact of programs and initiatives can strengthen the organization’s case for support. By measuring and reporting on their impact, nonprofits can demonstrate their value to donors, funders, and the community.

Advocacy efforts
Engaging in advocacy efforts to influence public policy and secure additional funding can be crucial for long-term sustainability. By advocating for policies that support their missions and building relationships with policymakers, nonprofits can increase their chances of securing funding and advancing their causes.

Assessing the Impact of Recent Tax Changes on Nonprofits

The potential uncertainty from the expiration of the Tax Cuts and Jobs Act of 2017 (TCJA) has been somewhat addressed by the passage of the One Big Beautiful Bill Act (OBBBA) in 2025. Some of the changes impacted nonprofits, both positively and negatively.

Nonprofits may experience change in the following because of the new tax law:

Charitable Deductions

• “Universal” charitable deduction for small-dollar donors
  The bill added a permanent charitable deduction for non-itemizers for cash gifts to qualifying public charities (up to $1,000 single/$2,000 joint). This could broaden the donor base for nonprofits. Nonprofits could see more middle-income households boost small-dollar and recurring gifts since they could now receive a tax benefit.
• New 0.5% AGI floor for charitable gifts to be deductible
  Otherwise deductible charitable contributions must be reduced by 0.5% of an individual’s contribution base for the year (which is, generally, adjusted gross income, AGI). For those who itemize, their charitable giving strategy may include “bunching” their charitable contributions into an every other year so that they exceed the thresholds in those years. Nonprofits have been seeing some of this since the TCJA, which increased the standard deduction with fewer taxpayers itemizing deductions. Nonprofits could see more of a shift in timing and structure of donations — bigger donations, but less often.
• Permanent limitation on deductibility of donations
  The 60% ceiling for cash gifts to 50% charities has been made permanent.
• 1% floor for deductions for corporate charitable contributions
  Otherwise allowable charitable contributions by a corporate taxpayer are allowed only to the extent that the aggregate of such contributions exceeds 1% of the taxpayer’s taxable income for the tax year. This is in addition to the 10% of taxable income limitation rule already in place. As a result, small and mid-sized corporate donors may reduce giving.

Permanent Increased Estate Tax Exemption

• The federal estate tax exemption has been permanently set at $15 million per person and will be adjusted for inflation after 2025. Historically, charitable bequests have often been motivated by a desire to reduce the taxable estate. With the increased exemption, many estates will fall entirely below the taxable threshold and there may be less need for charitable gifts as a tax mitigation strategy. There may be more of a shift from tax-motivated giving to more values-motivated giving. There may also be more of a shift to earlier lifetime gifting and more income tax planning instead.

Scholarship Tax Credit

• The new bill added a tax credit for donations to scholarship-granting organizations (SGOs) supporting K-12 students, up to $1,700 starting after 2026. Organizations must meet strict criteria (e.g., 501(c) (3), non-private foundation, 90% of income spent on scholarships, no earmarking, income limits, etc.). Qualified students must come from households with income less than or equal to 300% of the area median. Education-focused nonprofits may see new inflows.

Executive Compensation

• Excise tax on compensation greater than $1 million — The 21% excise tax on compensation over $1 million now applies beyond the “top five” and can apply to any current or former employee meeting the threshold (effective for tax years after 12/31/2025). This may push nonprofit boards towards clearer compensation governance. This may prompt compensation redesign (base vs. incentives, etc.).

Tax on Endowment Investment Income

• Tiered excise tax on endowment investment income — Certain private colleges and universities face a tiered excise tax on net investment income, with student count thresholds and higher rates at higher endowment-per-student levels. This replaced the previous 1.4% flat excise tax rate with a progressive rate structure ranging from 1.4% to 8%. This could lead to less endowment income, meaning tighter budgets for university-linked programs, research centers, scholarship funds, and community partnerships.

Nonprofits avoided some harsher proposals that were removed from the bill prior to its final passage. Earlier drafts of the bill included ideas like:

• Expanded UBTI on certain benefits or treating name and logo royalties differently — This would have affected universities, hospitals, and national charities with branding programs. Many nonprofits rely on royalty income, which has historically been excluded from UBTI.
• 10% excise tax on large private foundations — Earlier reconciliation language proposed a tiered excise tax on foundations exceeding $5 billion, with rates discussed reaching as high as 10% of net investment income. This could have materially impacted grantmaking capacity and endowment growth.
• Mandatory distribution rules for donor-advised funds (DAFs) — Earlier House discussion drafts included required payout timelines for DAFs, penalties if distributions were not made within set years, and possible reclassification of long-inactive DAF accounts.

Also, keep an eye on whether Qualified Charitable Distributions will be allowed for contributions made to DAFs. This has been in several separate prior legislative proposals.