The nonprofit industry is keeping a close watch on Washington in 2012 as this year could bring about some significant changes in tax legislation that will affect American’s charitable giving. While most of the proposed policies are not favorable to organizations filing as 501(3)c, fundraisers could see an increase in donations this year as people evaluate their financial plans for the future. Below is the current tax legislation under review:
Charitable deductions. President Obama’s 2012 fiscal budget proposes reducing the amount of money Americans can write-off on their taxes for gifts made to charitable organizations. Though Congress hasn’t (yet) voted this into law, concern about the national deficit could push the legislation forward in 2012. Donors who are worried about the potential for new limits in 2013 may be motivated to give in this calendar year, or to accelerate payments on pledges from past years, in order to receive the full tax break.
Estate taxes. Currently, an individual can gift or leave in an estate up to $5 million and a couple can leave or gift up to $10 million tax-free in 2012, but unless Congress takes action, much more of their estates may be taxable in 2013. The possibility for this change has already prompted many people to think about how best to arrange their finances and provide for their families. More donors are creating charitable lead trusts, which provide payments to a charity for several years before the assets revert back to the donors’ heirs. Because the estate-tax law will cause so many donors to review their wills this year, nonprofits should be sure to remind older donors to make charitable bequest plans. Beyond the current tax issues, nonprofits should focus on offering donors alternatives to traditional cash gifts. They should have a strong planned giving program that is part of the fundraising strategy.
Non cash gifts. These include the gift of stock, real estate, or other non cash donations. As interest rates remain historically low, donors who live off the earnings on their investments probably feel cash poor. However they still want to contribute to causes they care about and can do so by supporting a nonprofit with other types of gifts.
Bequests. A donor can designate a nonprofit as a beneficiary of a will or living trust to create a permanent fund. The donor can name a specific dollar amount or a percentage of their estate.
Gift annuities. Charitable gift annuities may also be a popular way for donors to invest in a nonprofit. Donors give assets to a charity to invest; in return, they receive payments for life in addition to a tax break. Gift annuity payments are typically worth more than donors can realize from treasury bonds, certificates of deposit, or money-market funds.
Charitable lead trust. This type of gift distributes income to a nonprofit for a predetermined number of years during a donor’s lifetime. The assets are then returned to the donor or their surviving family members. This type of gift allows a donor to make a significant gift to a nonprofit and then transfer back the assets while saving taxes.
In 2012 nonprofits should emphasize planned giving as part of their overall development strategy. Strategic fundraisers are constantly thinking about how economic environment and fiscal policy affects donors’ willingness and ability to give. Fundraisers should be well-versed in all types of gifts a donor can make. They should ensure their nonprofit has a communication strategy to promote planned giving as well as established policies to accept these gifts.
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