Tax Law Change, Impact on Charitable Giving and What You Can Do About It

Does anyone else wonder how the changes coming out of DC will impact the nonprofit sector?The Tax Cuts and Job Act will impact taxpayers personally, and will likely have some ripple effects on our sector. Until we’ve lived with the law for at least a year, the size of those ripples will remain an open question. But, we already know enough to make some general observations.

Will this impact your organization?

The new law will likely influence some donors’ charitable giving. Individual giving, for example, is projected to decrease by 5%. Smaller gifts, from people who give smaller amounts, are less likely to be deductible because the standard deduction has gone up.  The gifts are still deductible, but unless the donor is giving a significant amount, they may get more of a tax advantage from the standard deduction.

Major donors, on the other hand, can deduct a higher percentage of their gift. The Adjusted Gross Income (AGI) threshold has increased from 50% to 60%. For example, someone with an AGI of $1,000,000 makes a gift of $600,000 to your charity.  In 2017, the donor only would have been able to deduct $500,000, but in 2018, they can deduct the full $600,000 the same year. Nonprofits equipped to raise capital campaign and major gifts will particularly benefit from this change. If you want to dig deeper into the specifics of how the tax law might impact your nonprofit, the National Council of Nonprofits has put together a helpful checklist.

How much does the tax deduction motivate donors?

Fortunately, it’s much less important than factors like altruism and trust in your organization.  While it isn’t true of every donor, the majority of high-net-worth donors care much more about your mission, knowing that the gift makes a difference, loyalty to your organization, the joy of giving, and other factors than the tax benefit.So, if you have a strong relationship with your donors, you have much less to worry about than those nonprofits with giving built on more superficial terms.

How can you mitigate the risk?

The same good stewardship and fundraising practices that made nonprofits strong last year remain the best tools in 2018.  Those include:

Communication & Cultivation

Communication and donor cultivation are key revenue strategies for every successful, stable nonprofit. The new tax law has made that even truer.  Nonprofits that thrive in the future will effectively:

• Craft their message and effectively communicate their mission and impact.

• Engage their supporters year-round virtually, one-on-one, and through events.

• Ensure their donors appreciate the impact their generosity creates.

• Cultivate loyalty to the organization and mission.

• Make it easy and fun to give.

• Check-in personally with major donors to assess whether they plan to change their giving patterns.

Diversified Income Streams

• Do you have a deep bench of major donors? Would it have a major impact on you if even one or two changed their giving (for any reason)?

• Do you include grants in your revenue mix?

• Do you have any corporate sponsorships or partnerships?

Earned Income

• Have you explored earned income?  Many nonprofits have a viable earned revenue model, but need a little out-of-the-box thinking to connect the dots.

• Girl Scouts found a way to engage kids in a powerful learning and growth opportunity, consistent with their mission, while also earning vital income.

• College Forward helps underserved youth access higher education.  Along the way, they developed a way to make a profit (without charging the youth, of course).

Mission Capital can help you take a kernel of an idea and turn it into a profitable business.  We encourage you to take our free self-assessment to see if you’re ready to implement an earned revenue opportunity.

How about you?

What have your donors told you?  What changes have you seen this year in giving patterns? We’d love to hear from you what avenues you’re exploring to ensure your nonprofit stays ahead of the changing tax laws.  

Join the conversation! (Must be logged in to online member community to view). Member resources and discussions require a login to the online member community, an exclusive networking tool for Mission Capital Members. If you have any questions regarding access or are part of a member organization, but don’t yet have an account, please contact Chelsea Hartness at 512-477-5955 ext. 232.