Republicans’ tax overhaul could have long-lasting effects on how charities will raise money — and from whom they will raise money.
Congress increased the standard deduction — the amount every American can claim without itemizing — and experts estimate that millions of Americans will therefore no longer have reason to itemize and get a break for charitable gifts — leaving only the wealthiest Americans with a tax incentive to donate to charity.
Now, as the overhaul is headed to President Trump’s desk, many fundraisers are wondering what steps to take next in reaching out to donors. Here’s what the experts suggest.
Figure out the biggest changes that will affect your donors.
Deputize at least one fundraiser on staff to get up to speed on the overhaul and its impact on donors. That way, if supporters or board members have questions about specific issues, your organization will be ready to respond quickly and intelligently.
Many nonprofits have already been examining the impact of changes, like the increase in the standard deduction.
But other changes — like those affecting how much small business owners pay and limits on the deductibility of state and local taxes — could affect how much money donors will have to give.
Gregory Sharkey, senior philanthropy adviser at the Nature Conservancy, says his organization will have most of its immediate conversations about the tax overhaul in one-on-one meetings with donors.
He’ll ask open-ended questions like: “What are your thoughts on the new tax act? How is it going to impact you?”
What donors say could reveal areas of the tax bill that might have greater influence over their decisions than those getting the attention in philanthropy circles, Mr. Sharkey says: “It would be helpful to know — beyond just the charitable aspects — ‘How is the new tax act likely to affect you? Have you spoken to your advisers about that?’ "
The biggest effects, Mr. Sharkey thinks, will be for donors who give about $1,000 to $10,000 a year — many of whom might take the standard deduction instead of itemizing their returns as they did under today’s rules.
“For those really generous donors at more modest levels, it is possible that those folks will not be able to be as generous,” he says.
Understand what types of giving would not change.
Many donors are probably still likely to reap substantial tax benefits from donating stock and other assets that have grown sharply in value.
Congress didn’t tamper with the rules that allow people to avoid capital-gains taxes they would owe when they sell stock if they choose to give it to charity.
Gifts made directly from rollovers from their individual retirement accounts also didn’t change — and might look more enticing to some donors, says Brian Mittendorf, a professor of nonprofit accounting at Ohio State University.
People over 70 1/2 are required to make minimum distributions from their retirement accounts and are taxed on the amount they tap.
But they can donate up to $100,000 from their accounts to charity tax-free — and their gifts still count toward their minimum distributions.
“It’s not that IRA rollovers became more attractive, it’s that other forms of giving became less attractive,” Mr. Mittendorf says.
Charities that offer donor-advised funds might also persuade donors to make a big contribution to their charitable accounts in one year that exceeds the standard-deduction limit ($12,000 for single people and $24, 000 for couples, under the new rules).
Then donors can use that money to give to charities for several years — and will get a big tax deduction the year they give to the fund.
As Mr. Mittendorf explains: “If I move all that giving into one year, I get the best of both worlds — I get the standard deduction next year and I get the big tax write-off for all of my giving this year.”
Understand the big picture.
The tax measure may affect many of the people nonprofits serve, not just those they raise money from — and that might require more support from donors.
For instance, hospitals and other health-care charities must examine what it means that Americans will no longer be required to buy health insurance — a key provision of the Affordable Care Act that was struck down in the tax bill.
If a nonprofit determines that the change will have big consequences for the people it serves, then the message to donors should be: “We need you more than ever,” says Thomas Bognanno, president of Community Health Charities, which promotes more 2,000 health and wellness organizations and helps them raise money.
Update donors as the impact of federal changes becomes clearer.
Charities must be ready to communicate with supporters as soon as they start to feel the effects of the tax overhaul.
The Salvation Army plans to move fast to let supporters know if the organization sees declines in contributions because of the new law, says Ron Busroe, a spokesman for the national charity.
“The most important thing to emphasize is the need,” he says. “And as we start to experience a decline in income, we start being very proactive in communicating that to our donors and saying: ‘Look, this is happening, and this is affecting us and our ability to serve the 25 million people that come to us every year.’ "
Make it easy for donors to talk to their financial advisers about giving.
Though charities should refrain from giving tax advice, fundraisers can guide donors to think about specific tax provisions that might affect them, says Mr. Sharkey. “We can help identify some things that they might want to discuss with their advisers so they don’t just go in cold,” he says.
Meridian Health Foundation already has a system to help donors — whether they give big or small sums — to meet with advisers. It refers people with questions to a group of accountants, lawyers, and other tax advisers — called Meridian Professional Advisor Network — who regularly help supporters with planned gifts and other transactions to the hospital.
Some advisers in the network will hold seminars in the coming year about the tax changes and other items related to charitable giving for local financial consultants. The organization will also send a letter to advisers in the network in January that will note the biggest tax changes. “It’s important for us to be a resource [for advisers] for knowledge around charitable gift planning,” says Robert Wahlers, vice president for development at the foundation.
Focus on the mission.
Most of all, fundraisers should do what they do best, experts say: Remind donors of the value of the organization’s mission.
“We have to show donors that ‘Hey, your gifts are making a tremendous impact, and we are worthy of your support — whether or not you get a charitable deduction,’ " Mr. Sharkey says.
For most supporters, tax incentives are not the biggest factor in making a donation, says Kathryn Miree, a lawyer who helps charities with planned gifts and other complex transactions.
“I spend most of my time with donors talking about the gift, their motivation for the gift, and what they hope to achieve with the gift,” she says.
Taxes are often the last item discussed with supporters, she notes.
She adds: “The most important thing for [nonprofits] is to build strong relationships with their donors and to focus on the impact that they have on lives and how their mission impacts those they serve. If they focus on those two, they are going to continue to grow their giving — because donors give to impact.”
