Thanksgiving through the end of the year is traditionally the big fundraising season for nonprofits. In one GuideStar survey, U.S. charities received as much as 50% of their annual donations between October and December. And although the holiday spirit moves many donors to give, it’s the charitable tax deduction that typically spurs them to make their gifts promptly.
But this giving season is likely to be different. The Tax Cuts and Jobs Act (TCJA) that went into effect January 1 nearly doubles the standard deduction to $12,000 for individuals and $24,000 for couples (through 2025), meaning that fewer taxpayers are expected to itemize deductions. Unless your organization is one of the rare nonprofits that don’t depend on end-of-year giving to keep operations afloat, you should rethink your approach to holiday fundraising.
Bunching and other tax strategies
First off, it’s important to remember that not all taxpayers are going to stop itemizing. For example, many high-net-worth individuals are likely to continue to welcome the tax benefits of charitable giving. Make sure you provide donation substantiation forms to those who’ve already made contributions in 2018. And remind them that there’s still time to increase their deduction by donating.
You might also promote to potential donors the concept of “bunching.” Instead of giving to your charity every year, donors might contribute twice as much every two (or three times as much every three) years. Assuming other deductions push them over the standard deduction threshold, donors would itemize only in “giving years.” In other years, they’d take the standard deduction.
Other strategies that provide donors with tax advantages include gifts of appreciated stock and, for those over 70½, donations of up to $100,000 in IRA assets. A charitable gift annuity is another way to potentially achieve multiple objectives.
In the past, you’ve likely urged supporters to donate by December 31 so they can deduct their charitable contribution on that year’s tax return. And such a deadline usually discourages procrastination. You can still use a “ticking clock” concept to motivate donors. For example, consider participating in Giving Tuesday (November 27 in 2018). Now in its seventh year, this enormously popular 24-hour fundraising event features on- and offline activities and involves thousands of charities worldwide. See givingtuesday.org for more information.
Or you might host your own fundraiser or donor appreciation event in December. It will give you and your staff an opportunity to engage with supporters face to face, touting that year’s accomplishments announcing plans for the coming year. Be sure to follow up with thank you notes reminding attendees that you can’t begin to implement new ideas until you know you have the budget to do so.
Tapping the holiday spirit
Almost everyone has someone on their gift list who’s impossible to shop for. Encourage supporters to make a contribution to your charity in their name. Not only does this provide you with immediate funds, but the gift may introduce your organization and mission to a potential new donor. Stakeholders, including current donors, staff and board members, might also ask their family and friends to make donations to your nonprofit in lieu of physical gifts.
Although you should avoid anything heavy-handed, use communications during this time to stress that the holidays are about giving without any expectation of getting anything in return. And be honest with supporters about the impact of tax reform. While it may have put more dollars in their pockets, the dwindling of donations from many taxpayers has largely hurt charities.
There’s still a chance that Congress will act before the end of the year and change the rules on charitable deductions. (See “Hope for a universal charitable deduction remains.”) But most organizations can’t afford to wait for lawmakers to act. Start planning now for what could be a challenging giving season. And if you need help, feel free to contact us.
Hope for a universal charitable deduction remains
Ever since the passage of the Tax Cuts and Jobs Act, nonprofits have been lobbying Congress to revise a law that they regard as detrimental to charitable giving. In response to the nonprofit sector’s concerns, Reps. Chris Smith (R-N.J.) and Henry Cuellar (D-Texas) have introduced the Charitable Giving Tax Deduction Act in the House. Sen. James Lankford (R-Okla.) has sponsored similar legislation in the Senate.
Both bills would allow anyone, regardless of whether they itemize or take the standard deduction, to deduct charitable contributions. But whether Congress takes up the issue this year is still an open question.