Regarding the Tax Cuts and Jobs Act of 2017: Let’s start with the good news.
Under the prior law, taxpayers could not deduct more than 50% of their adjusted gross income in charitable contributions. The new law increases this limit to 60% for those who itemize their deductions (approximately 30% of taxpayers). This limit increase could motivate donor to make larger donations this year—especially those who are wealthy and more likely to itemize.
The bad news: Experts predict that fewer taxpayers will itemize—in fact, estimates say only 5% compared to 30%, according to Urban-Brookings Tax Policy Center. Why? Because the new tax law doubles the standard tax deduction to $12,000 for individuals and $24,000 for couples. The assumption is that a higher standard deduction means fewer taxpayers will itemize, reducing their motivation to give to charities and nonprofits. Or to put it another way, moving forward, only 19 out of 20 taxpayers will receive no tax benefit by giving to charity.
The new tax law also eliminates another charitable incentive: Many donors make charitable gifts in their will to lower their estate taxes. However, under the new law, estates worth up $11 million per person ($22 million per married couple) are exempt from the federal estate tax starting this year. That’s double the amount from last year.
What does all this mean for your nonprofit? It’s likely that, for the first time in seven years, 2018 will see a decline in charitable giving. One study predicts that donations will fall by at least $13 billion this year. Ouch. That decline is expected to largely come from the middle of the income scale. The richest Americans will mostly keep their ability to take the tax break.
Unfortunately, there’s not much your organization can do to change the tax laws. However, you can change the focus of your asks and appeals. Now more than ever, it’s important to turn your audience’s eyes back to the heart of the matter—your mission. Since tax savings won’t be a primary motivating factor for most donors, they’ll need to be compelled by the organization’s programs and impact. The reality is, you may need to work harder this year to retain the same donation amounts as last year.
Don’t panic just yet. Use the Tax Cuts and Jobs Act to change the story your organization is telling. If you’ve relied heavily on the tax break incentive, switch up your messaging and instead talk about your cause, the people you impact, and the necessary role your donors play in helping you accomplish your mission.
Here are some other steps that may minimize the impact the new tax law will have on your fundraising efforts.
Use crowdfunding. With crowdfunding, you’re raising money for a specific event, project or initiative, typically within a short period of time, and the call to action on the campaign page is Donate Now. You appeal to your audience to give and then share your campaign with their networks to donate.
Donors typically give because of a connection to your cause or to a constituent. Either a friend asked them to give or they personally care about your mission enough to go out and fundraise for you—the tax deduction motive is secondary, if it even plays a role at all. This type of fundraising may become more effective as they fundamentally rely on connections, not tax deductions.
Be honest. While predictions about this year’s overall charitable giving look grim, many of your supporters are seeing larger paychecks thanks to the new tax law. Use this opportunity to ask your supporters to increase their donations to your nonprofit. Don’t wait until the end of the year. It’s really okay to tell your supporters now how deeply the new tax law could affect your organization. With fundraising, honesty is the best policy—your supporters may appreciate your candor and choose to share their tax savings with you once they know how hard of a hit the nonprofit sector is expected to take this year.
Encourage personal campaigns. You’ve probably seen these on Facebook or other social networks: Personal campaigns allow supporters to set up a campaign in honor of their birthday, anniversary or other celebratory milestones and then ask their network of friends and family for donations instead of gifts. It’s highly effective because, again, it’s about loyal supporters making the ask for your organization on your behalf. Here’s a pro tip: Don’t wait until the holiday season to encourage your supporters to start personal campaigns. Big life events like graduations, weddings and anniversaries typically happen in the spring, and birthdays, of course, happen year-round. DonorDrive found that spring campaigns typically bring in 70% more revenue, so anytime is a great time to begin raising the idea of personal campaigns with your supporters.
Focus on major donor fundraising. This has always been a good idea given that over 88% of all funds raised come from just 12% of donors. With the new tax law, this could change so that the lion’s share of giving dollars comes from an even smaller pool of donors. So why not focus your efforts on tapping into this segment of your constituents? When you talk to your major donor prospects this year, ask them how they plan to spend the extra income they’ll receive as a result of the new tax law—and be ready to offer specific opportunities for them to invest in where your nonprofit is concerned.
Take advantage of new corporate giving opportunities. Just like major individual donors, many businesses will see a cash windfall thanks to the new tax law. Some large companies have said they’ll increase wages and offer employee bonuses, but it remains to be seen if they’ll follow through. Either way, it’s a great time to hone in on the business community and go after corporate sponsors that may be looking for (and able to afford) new opportunities to spread good will and support an organization they believe in.
While the Tax Cuts and Jobs Act may not seem philanthropy-friendly, this much remains true: Many people still want to do good, invest in a cause and make a positive impact on the world, tax deductions or not. Now’s not the time to throw your hands up in the air and surrender—it’s simply an opportunity to get better at telling your story and engaging with your community. People who want to give to a cause they’re passionate about will still do so, even if Uncle Sam doesn’t reward them for it.
At Firespring, we create affordable websites and built-in fundraising tools that will help you engage better with your community and prospects—and they’re all designed with nonprofits like yours in mind. If you want to get better at captivating and engaging your audience with a website that tells your story front and back, we’ve got you—in fact, this is what our heart beats for. Ask for a free demo website and watch the magic happen.