December 22, 2017
By Jack Doyle, Amergent President
“We fear less individual contributions to charity….” was the lead story from the DMANF on December 20 because of tax reform.
For that to happen, a lot of bad things would need to align—future tax payers who choose not to itemize their deductions would have to stop making voluntary charitable gifts. Do you see that happening? I don’t.
Tax reform is intended to give back some money to taxpayers. People who didn’t make charitable gifts before the reform are going to keep it for themselves. People who enjoy giving will have a little more to do with what they enjoy. I expect the charitable people to be open to giving some of this money to charities because that’s in their giving DNA.
Fundraising 101 taught us the 80/20 rule—80% of the funds generated come from the top 20% of the donors. In this conversation about tax reform, let’s say 80% of your donors won’t itemize in the future and that impacts part of 20% of your annual income. Eighty percent of your income will still come from the 20% with the capacity to give more.
Consider what kind of taxpayer will continue to itemize deductions. They will have incomes that allow them to be more charitable than the average donor. You will find them among your mid-level and major donors. You have cultivated their loyalty for years and have enjoyed their generous support. Under tax reform, they will continue to itemize their annual giving. Their giving isn’t at risk if the donor relationship is strong. What has happened under tax reform is they may have more money to give.
What has happened to them in a negative sense is they have lost some tax benefits related to the state income taxes and property taxes they were able to deduct in the past. The states impacted are where you have a LOT of donors. This will mean the overall amount at the bottom of their deductions will decrease if they don’t increase what they are able to deduct. I believe a lot of mid-level and major donors will increase their charitable giving to offset the tax benefits they will lose.
There was a surge in giving to donor-advised funds in 2016 after the election. I expect there will be an even greater surge in deposits before the end of 2017 as modest donors who enjoy giving prefund their future giving by taking advantage of the current tax codes and get one large tax deduction now. Some of them might not choose to itemize their giving after 2017.
The outcome here is there will be more money set aside for future charitable giving in these donor-advised funds than ever before and the only way those funds are distributed is when the donor directs the DAF charitable sponsor to grant a gift.
But the greatest overall level of income will still come from the donors who do not have giving accounts. They have checkbooks and credit cards and love what you do when they give you their love and support. Remind the 80% of your donors giving 20% of the money what impact they have on those you serve and don’t waste too much time talking about how their gift might be tax deductible. For those giving 80% of the money, why not ask them if you can help them with their future tax planning and giving plans?
Happy New Year to all and best wishes for successful fundraising in 2018!