How many of us are still recovering from the rollercoaster known as 2017? It was a whiplash year.
In early 2017 we saw a flexing of the American philanthropic muscle through an unprecedented surge in “rage donations.” Americans used charitable gifts as a direct response to the November 2016 election and attacks on core American tenets of freedom of choice; freedom of expression; diversity in gender, race, and ability; and tolerance and acceptance. But even as donations swelled, the Tax Policy Center estimated that the new Administration’s projected changes could reduce charitable giving between 4.5-9%. Twelve months later the Tax Bill of 2017 left experts speculating we’d see a reduction of anywhere from $13-20 billion in charitable contributions just from individuals alone. That philanthropic muscle we saw clearly at the beginning of the year felt a distinct cramp coming on.
If you’re baffled by all of this, and slightly panicky, you’re not alone.
But how alarmed should nonprofit leaders really be?
Let’s take a deep breath together and review the big picture:
Charitable giving in the U.S. has remained steady between 1.6 to 2.1% of the U.S. Gross Domestic Product (GDP) for the last 50 years, despite fluctuations in the economy and volatile politics. Giving USA last year reported another consecutive year of charitable giving growth by 4% from 2015 to $373.25 billion in 2016. Since 2005, giving has grown by $80 billion. Despite military conflicts, terrorism, economic booms and busts, and changes in administrations, Americans keep giving. And fairly consistently.
Now join me in a sigh of relief. The new tax bill isn’t as bad as earlier versions in two big ways:
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Charitable deductions remain. Of the three “big” deductions taxpayers can take (charitable contributions, mortgage interest, and state and local taxes), deductions of charitable gifts is the only one that was untouched (and in fact increased to 60% of adjusted gross income). Expanding the limit may not necessarily affect most of your donors, since the number of tax payers who contribute 50% of their AGI is quite small. Overall, taxpayers of all tax brackets will likely have more discretionary income as a result of the overhaul. If one of your biggest fears has been that eliminating charitable deductions entirely could cause donors to rethink their charitable decisions, rest easier knowing that won’t be the case.
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The Pease Limitation was repealed. “The what?” (You’re not alone in asking.) This provision reduced what high-income individuals (incomes over $261,500 for individuals, $313,800 for couples) could deduct. This repeal could encourage donors in this category to make larger contributions that they can deduct.
We already know the tax benefit isn’t a huge motivator for donors to give. In fact, in every U.S. Trust® Study of High Net Worth Philanthropy report I’ve seen, tax deductibility comes in last. What’s at the top is believing in the organization’s mission and feeling like they are making a difference. Every. Single. Time.
So what do you do as a fundraiser in 2018?
First, make sure you have a plan to communicate and connect with your donors, both on the larger scale and through personal touchpoints. Donors give to you because they want to help you solve a problem that you both care about—whether it’s homelessness, poverty, mental health issues, disease prevention, etc. Do you frame your communications through the lens of “why” you do what you do and “why” your donors’ support is important? Highlight your results, impact, and dreams to assure donors their gifts are vital to your work and still needed because your work is not done yet.
Second, look at how you are encouraging upgraded giving. What are all the ways your donors can support you?
Consider these steps this year:
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Implementing a monthly giving program increases donor retention rates and makes it easy for donors to stretch their annual commitments.
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Creating a Giving Society focuses on your mid-level donors and offers a way for you to bring these donors a little closer to your work through more tailored communications and outreach. It also helps you identify who may be your future major donors.
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Promoting gifts of appreciated securities or non-cash assets helps donors avoid capital gains taxes even if they itemize their deductions. Make sure your organization is set up to receive them first.
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Encouraging donors to consider deferred or estate gifts. Gifts from IRA Rollovers remain untouched and could offer donors over the age of 70 another tax benefit. Bequests are another way donors can sustain their giving to you over the long-term. The estate tax has virtually been eliminated for all but .1% of estates.
Donors must feel that their current giving is needed and making a difference before they can be inspired to increase their giving. This is why your messaging plan can’t be overlooked. When donors don’t feel valued or that their gift is helping, they stop giving to you. It’s that simple.
Thankfully, the new tax laws aren’t as bad as bad as we all feared. Yes, it may be too early to see and we could see a reduction in contributions a few years from now after all the dust has settled. But I’m remaining optimistic—and you should, too, because donors use their giving to make the world a better place. Recent events have been a good reminder that our fundraising success is built on strong donor relationships (read: donor retention) and compelling stories of impact, results, and vision.
This year I’m going to help you hear the signal amidst the noise by highlighting key fundraising issues that help you connect with your donors and volunteers more effectively. Let’s connect in 2018 to talk about how I can help you rise to your fundraising challenges this year. Email me to set up a free 20-minute consultation!
Note: I’ve drawn my perspectives from reports by tax experts featured in the “Resources I Recommend” section of my new monthly e-newsletter. Do check them out for more detailed information about the tax law and its implication on fundraising.
