Tax Reform and Charitable Giving for Nonprofits
“In this world, nothing can be said to be certain, except death and taxes.” Ben Franklin’s wit aside, the Tax Cuts and Jobs Act (TCJA) will impact every individual and organization. The issue we hear about the most from our customers is how the increase in the standard deduction amount will effect giving. If the standard deduction is more beneficial than itemizing and donors find they can’t write off their donation anymore, will they still give as much? The truth is, only time will tell. But recent history gives us hope.
Americans Reach New High in Giving
According to Giving USA’s annual report on philanthropy, American individuals, estates, foundations and corporations contributed an estimated $390.05 billion to U.S. charities in 2016, surpassing 2015 and 2014, when charitable donations hit a record high. Americans continually prove that they want to make a difference and are dedicated to contributing to the causes that matter to them.
TCJA’s Impact on Giving
The key changes under the TCJA include:
- Increase in the standard deduction to $12,000 for individuals and $24,000 for joint filers.
- Elimination of personal exemptions.
- Limitation on State and Local Taxes (SALT) of $10,000 (inclusive of income and property taxes).
- Reduction in the corporate income tax rate.
- Reduction of five of the seven tax brackets (marginal rates).
At Network for Good, we specialize in fundraising best practices, not tax policy. So the best piece of advice we can offer you about how the TCJA will affect your nonprofit is to talk to your accountant and make a plan that includes donor engagement. But to help us break down the TCJA changes, we reached out to Network for Good Fundraising Coach and Founder of Fundraising Strategies, John Gilchrist, FAHP, CFRE, who joined us for a recent webinar “3 Ways the New Tax Reform Act Impacts the Nonprofit Community.” You can also read some of John’s insights on these changes and their effect on nonprofits in our other blog post here.
Keep Calm and Carry On
Change can be scary, but the worst thing you can do is overreact. The key factors that drive giving still exist. Professors Sara Konrath and Femida Handy, experts in giving-related topics in psychology and economics, respectively, conducted a study on why people give to charity. Through their findings, they developed a ‘motives to donate’ scale, highlighting five key factors for why people give to nonprofits: altruism, trust, social, egoism, and taxes.
As you can see, altruism is the number one reason—far surpassing taxes—which supports our belief at Network for Good that the desire to help others is stronger than any personal tax benefits.
At the heart of every nonprofit is the desire to change the status quo. You don’t throw up your hands and capitulate. You roll up your sleeves and make things happen. Even tax laws can’t break that spirit. Giving habits may change as a result of the TCJA, but Americans have proven over and over again that we are a philanthropic society. Even at the height of the Recession, charitable giving in the U.S. exceeded $300 billion.
The changes put into effect by the TCJA offer nonprofits an opportunity to lean in and revisit the conversation with donors about how you’re improving the community you serve. The fact that they may not receive a tax break makes their gift that much more significant and shows their commitment to the work you do. Now is the time to talk to your donors about how their gift directly affects the change they want to see in their community. Find additional inspiration for donor engagement in our “10-Point Checklist to Make the New Tax Laws Work for Your Nonprofit.”
We know that altruism is the driving factor for why people donate. The generosity of your donors is what makes your work possible. Let them know how much you appreciate them and you’ll all share in the success of your organization. Use Network for Good’s fundraising software to analyze your data in order to put your organization’s energy and funds where it will do the most good. Continue to cultivate the loyalty of your donors that give small gifts; the donors that may not be affected by itemized taxes. Look at their giving history. How long have they been with you? Perhaps now is the time to ask them to expand their giving? If you depend on midlevel donors, allocate resources for marketing and outreach to them in order to engage a broad spectrum of donors. In conversations with your major donors, discuss with them the importance of their gifts and remind them, throughout the year, of the impact they have.
Interested in hearing more about how the new tax laws will impact nonprofits? Register today for our upcoming webinar “Tax Reform – Impacts on Nonprofits and Giving.”