Since the Tax Cuts and Jobs Act of 2017 was passed in December 2017, n
onprofits wondered how it would affect their donations. In 2017, 46.5 million tax filers itemized. Meaning that 46.5 million could make a donation and get a tax benefit for it. In 2018, it was expected by the Tax Foundation that only 18 million would be able to itemize under the new law. Would this cause donations to drop precipitously?
In a Guidestar blog in March, advice regarding local charities noted “These changes to the law may impact some charities more than others, in particular, local and community-based organizations. It’s shown that these types of organizations benefit from the philanthropy of middle-income Americans to a larger extent.” These middle-income Americans are, generally,
the ones who no longer itemize.
It was expected that the donors capable of making large donations created a stronger market which resulted in these donors feeling good and still able to take advantage of the tax-deductibility of donations.
Now that April 15th has passed, we can take a look at some evidence on how the Tax Cuts and Jobs Act effected the contributions to Nonprofits in 2018. This evidence is only a preliminary at this point. As we will note later, the actual effect may not be known for at least a couple more years.
First, the preliminary evidence so far:
1) There was a 1.6% increase in donations from 2017 to 2018 according to the Fundraising Effectiveness Project (which tracks 4,598 Nonprofits.) Data collected by Blackbaud, a software company, found a 1.5% increase in overall giving among 9,029 Nonprofits. This is a small sample considering that the Internal Revenue Service reported that there were 1,286,181 501(c)(3) organizations.
2) Blackbaud also noted that giving was down 2.3% for Nonprofits with budgets under $1 million, up 2% for Nonprofits with budgets from $1 Million to $10 Million, and up 2.3% for Nonprofits with budgets over $10 Million.
Looking at this evidence, it would comport with what I saw during tax season. Most of my clients still gave to their favorite Nonprofits even if they did not get to itemize. Many of them deeply care about the cause they are giving to and will continue to give even without a tax benefit. I did notice a small decrease to Nonprofits where my clients did not have a connection.
Tax Advisors will continue to advise their clients to bundle donations and make those donations every 2 or 3 years to take advantage of years where the client may exceed the itemized threshold. They may also advise their clients to donate to a donor advisor fund in one year so the donor advisor fund can disburse these funds to a charity over multiple years. This will work or a small percentage of those people who are somewhat close to meeting the itemized threshold, but there are many other taxpayers who will still contribute despite not itemizing, albeit only to the charities with which they have a personal connection.
There is a concept of “Stewardship” in this situation. Nonprofit stewardship means the responsible planning and management of resources. This part of the stewardship is donor cultivation. Part of the necessary data mining is to find out what connects the donors who have given in the past to the nonprofit. Is there a personal connection with the Nonprofit that helps the givers to connect? Is there a family member that has or had a disease that makes the giver more likely to give in the future? It is important for those in a position of responsibility to have this data so they can reposition the Nonprofit to thrive in what could be a challenging environment. You can then target different people with different messages. For those donors that no longer itemize, the message will be different than the message to large donors who still do itemize.
This data should be kept in a CRM system and then should be presented to the Board on a regular basis through dashboards that can tell the Board that the Nonprofit has a strategy to target those givers who will most likely give. Being able to target donors is the best defense a nonprofit can have in preventing a reduction in donations. Good data mining in a CRM system
will allow you to do
This may be especially important for Nonprofits with budgets under $1 million. If the preliminary evidence is correct, these Nonprofits will suffer most. They are also the least likely to have the resources to afford a CRM system with a solid accounting system to give them reliable data. However, these Nonprofits are the ones that need this information. In these situations, it
will be the Executive Director that has to find a way to get this data and connect with the donors.
I expect the information over the next two years will bear out the preliminary evidence we have seen thus far. If you want more information on how you can put in systems discussed in this article to help prevent an erosion of contributions, feel free to contact me at jrunalp@unalpcpa.com. I am a Nonprofit Specialist certified by the AICPA.
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