With the passing of the 2018 tax reform legislation, there has been a lot of discussion about how it will affect nonprofits and charitable giving moving forward. Here, we offer a brief overview of relevant changes, discuss their potential impact on charitable giving, as well as provide strategies for fundraising planning.
Standard Deduction: Under the new legislation, the standard deduction nearly doubled, which means fewer people are likely to itemize and take advantage of the charitable deduction. Under the old legislation, about 30% of tax payers itemized and they were responsible for 82% of total US philanthropy. It is estimated that as few as 5% of taxpayers may itemize under the new law.
Estate Tax: The estate tax exemption doubled, thereby reducing in some instances the incentive to consider a gift to charity as part of an estate. A reduction of the number of estates subject to the tax could lead to a decrease in charitable giving through wills.
Limit on Donations: The new legislation increased the limit on cash charitable donations to 60% of adjusted gross income for those who itemize, up from the previous limit of 50%. The increased limit will allow for greater savings for taxpayers who continue to itemize deductions.
State and Local Tax Deductions:The state and local tax deductions remain in place for those who itemize their taxes. However, under this reform there is now a $10,000 cap, which will affect those who live in high-tax states. States with some of the largest income tax burdens are also states with the largest number of itemizers and some of the highest levels of philanthropy. Some examples, with itemizer percentages from 2017, are the following: NY (37%), CA (37%), MD (49%), MA (40%), CT (44%), OR (40%). The number of itemizers may decline in these states.
Recommendations for your donors
- One avenue to consider is donating appreciated stock – something many investors have in these hot market conditions – rather than just writing out a check.
- Donors over 70 years old who are taking required minimum distributions from IRAs are able to give directly to charity and reduce their taxable income.
- Because options to deduct gifts vary from state to state, as well as within different tax brackets, the importance of donors understanding these changes and how they may be affected by them is paramount. Donors should check with their financial advisors or accountants to discuss options and strategies.
Three insights for your nonprofit organization to keep in mind
While there may be a lot of focus on the effects of tax changes, it is important to remember that tax considerations are not a prime motivator for giving. Our research, distilled from over 70 years of fundraising experience, tells us that people are more likely to give to causes when they feel a personal connection to the goals of an organization.
1). Reinforce your mission: Through any changes to the financial climate, your organization’s ability to effectively articulate its mission continues to be the most important aspect of your work. This includes honing your mission statements and clearly defining your priorities.
2). Define your community outreach: If you are concerned about the potential drop-off of smaller individual gifts, use this as an opportunity to redefine your outreach to constituents. The case for support can provide both new and existing donors with an understanding of why your cause matters now and why it requires action from donors of all levels. Put time into underlining your relevance and brainstorm innovative ways to expand your community.
3). Show the impact: Our research shows that since the recession of 2008, people tend to choose their top charities with a sense of social entrepreneurism. Continue to show your donors how their gifts are specifically creating positive change.
About the Author
CCS is a strategic fundraising firm that partners with non-profits for transformational change. For seven decades, the firm has empowered many of the world’s greatest organizations to advance some of the most important causes in history. CCS plans, manages, and implements programs that achieve fundraising goals and mission impact.