2017 Tax Law

One of my favorite skits on the Johnny Carson Show was Carnac (and yes, I’m dating myself). Johnny as Carnac, the mystic from the East in a large feathery turban, would “divine” the answer presented to him in an envelope before his sidekick, Ed McMahon read the question. Perhaps this is analogous to the predictions about the new tax law and its effect on charitable giving?

Response to 2017 Tax Law

Many experts have weighed in on the tax bill’s effect on charitable giving and the majority forecast gloom and doom (a $12 billion drop in annual giving is predicted by the Tax Policy Center). I’m certainly not an expert on this subject, nor am I an attorney or CPA. However, I’ve done a fair amount of reading on the topic and I have a couple of decades of philanthropic experience under my belt. Bottom line, while the doubling of the standard deduction means the number of donors who itemize will shrink and it could make donors of very large cash and stock gifts take pause, I have faith in the generosity of the American people. My hunch is that giving will change, but not decrease by as many billions as predicted.

Thoughts from Ignite Philanthropy

  • Decades of surveys show most donors are not motivated by income tax benefits. Giving is emotional, primordial. People want to make a difference. The mission of the organization is what really counts.
  • Giving may become more strategic, so messaging needs to change. Nonprofits should focus on strengths and differentiators. Use multiple communication channels. Make people care.
  • Repeat gifts in the $1,000+ category are now more competitive. Move donor stewardship up on the list of development office priorities. Hire skilled development staff (or consultants) who know how to woo. And who can do the math needed to achieve goals.
  • Remember the 80–20 rule. Eighty percent of fundraising revenue comes from 20% of an organization’s donors. Most major donors (of $1,000 and up) are probably in the 20% category. They will continue to itemize anyway. Their deductions likely already exceed the new standard deduction base of $12,000 (individuals) and $24,000 (married couples).
  • Now is a great time for planned giving. Take advantage of the stock market boom. Understand the rules for IRA giving and charitable trusts. Pooled income funds or charitable gift annuities are a good way to move assets out of an estate while retaining an income stream for life. Donors don’t have to be super wealthy to benefit organizations that speak to their hearts. They just need to plan. And get tax/legal advice.
  • Play up the increase in adjusted gross income a taxpayer can write off from cash donations – it’s now 60%, up from 50%. This will be especially appealing to older donors living off social security, interest and dividends. Go for bigger, multi-year gifts as an option.
  • Nonprofits will need to think creatively. Diversify their income streams. Start a social enterprise or merge.

Americans are a generous people. We relish the independence of giving where we want to give. Toward the end of 2017, people scrambled to pay pledges and moved up giving strategies in anticipation of the new tax law. Consequently, total giving for 2017 will likely exceed expectations. But even Carnac will have to wait another 12 months to learn the tax bill’s effect on giving for 2018.