Under the tax reform that passed last month, some changes could impact your donors and charitable giving for your organization.
Reduced number of taxpayers qualifying for charitable tax deductions
With fewer Americans qualifying for tax deductions, we could see fewer dollars given to nonprofits. One study by the Indiana University Lilly Family School of Philanthropy predicts that donations will fall by at least $13 billion (about 4.5%) next year. The majority of the decline in giving is predicted to be concentrated among middle income donors.
Some donors will still qualify for charitable deductions
The final tax reform bill maintains the charitable deduction for taxpayers who continue to itemize. The current bill makes two positive adjustments for those making these itemizations (an increase in the percentage of cash contributions of their AGI and repeal of the Pease limitation).
Shifting giving priorities
Historic giving trends suggest that social service organizations and religious organizations are more likely to receive support from middle income donors, while wealthier donors more often contribute to educational institutions, the arts, and in many cases the environment. According to an article about the tax bill’s impact on philanthropy printed in the Washington Post last month, the changes to the tax code could “change how the public views donating and alter the priorities of nonprofits.”
So now what?
You could sit with your head in your hands wondering how you can possibly raise the money your nonprofit needs, or you can use this as an opportunity. Do not assume that any donor will stop giving. Americans are incredibly generous. According to Giving USA 2017: The Annual Report on Philanthropy for the Year 2016, Americans contributed an estimated $390.05 billion to US Charities in 2016. They have long made gifts to charitable organizations even when they have not itemized.
At The Curtis Group, we say, let’s make lemonade!
1. Engage your donors
The Curtis Group affirms that fundraising is about relationships, relationships to the organization, to the staff and to the board. Yes, the charitable deduction is a big deal, but why not use it as motivation to ensure your donors are engaged and invested in your work. Make sure you are demonstrating impact. Now more than ever, your current donors are critical. It has always been easier and more cost effective to renew a current donor than secure a new donor. With the possibility of a 4.5% reduction in charitable giving, focus your efforts on stewarding your current donors throughout the year. Learn more about donor-centered fundraising.
2. Plan for some changes to the ways your donors give
By engaging your donors, you are opening the door for conversations about their giving habits and focus. Make plans as an organization for some of the following possibilities. (To learn more about making a Development Plan, be sure to check out our upcoming webinar, “Crafting a Strategic Development Plan” on February 14. See below for more information.)
- Donor-advised funds – Donors might be more incentivized to set up a donor-advised fund. These funds would allow your donors to make a larger contribution in order to itemize and then use that fund to make gifts over ensuing years. Learn more about the benefits of donor-advised funds, and how you, as a fundraising professional, can prepare your organization for the growth of these funds.
- Bundled gifts – A donor may decide to give what they would normally give over two or three years and bundle it into one tax year, so they can exceed the standard deduction.
- IRA gifts – For donors over 70 ½, consider talking to them about a gift from their IRA’s required minimum distribution, so they could benefit from numerous federal income tax benefits including lowering the donor’s Adjusted Gross Income.
3. Build leadership
Before you start to feel completely overwhelmed at the prospect of personally engaging with each and every one of your donors, consider the potential when you leverage the relationships of those around you. Draw on the relationships of your board, your committees, your CEO and every member on staff at your organization. They can and should all help you cultivate, steward and strengthen relationships with your donors.
4. Stay informed
Be sure that you are a resource for your donors. Stay up to date on the ongoing changes and how they could impact charitable giving. Below are some resources. Of course fundraising and charitable giving are about much more than tax code, but these changes are an opportunity for you to be informed and prepared to talk to your donors about the impact of the reform (and encourage them to talk to their financial advisors).
- Sign up for The Curtis Group emails
- Association of Fundraising Professionals
- Indiana University Lilly Family School of Philanthropy Blog
- The Chronicle of Philanthropy
Remember, Americans are generous and are still going to make charitable gifts. So be sure you capitalize on these changes by engaging with your donors, ensuring that they understand the impact of their support, making a plan and building for the future.