Individual Donations and the Tax Cuts and Jobs Act

There’s so much uncertainty surrounding the impact the new Tax Cuts and Jobs Act will have on individual giving, that many of our non-profit clients are asking for advice on how to plan their fundraising activities for the coming years.

We hold steadfastly to what we’ve learned though research and years of experience managing appeals for dozens of charities:

Target the right donors with messaging that reinforces their emotional connection with your organization, and your donors will give because they believe in your mission, not just to get a tax deduction.

This has always been true, but it’s even more meaningful now under the new tax plan.

Why might the new tax act affect charitable giving? In simple terms, it’s expected that the increase in the standard deduction (from $12,700 to $24,000 for married couples) will result in fewer people itemizing their deductions if there’s no direct tax benefit tied to their gifts.

In recent years, approximately 30% of tax payers itemized their tax deductions when they did their tax returns, with many making year-end donations to reduce their tax liability. Now, under the new tax act, it’s expected that fewer than 5% will itemize. Fewer people itemizing could mean fewer people donating.

Now more than ever, it’s important to know your donors, what motivates them, how often to appeal to them and through what channels.

Charities should be aware that there are strategies for philanthropic-minded individuals to continue to give and still receive tax benefits from their giving.

Bunching is one such strategy and it may become more common given the new standard deduction. With bunching, a donor lumps multiple years of giving into a single year’s gift, pushing them above the standard deduction amount and allowing them to receive tax benefits for the amount over the standard deduction. It’s a good tax saving strategy for those who can afford it, but it can wreak havoc on annual planning and budgeting at the charity.

Being able to identify the donors who are bunching can help your charity save fundraising expenses and tailor the timing of appeals to align with their giving years.

We specialize in gaining donor insights to inform these kinds of fundraising strategies and to develop the emotional connective tissue that binds donors to charities. Want to know more? Contact Kirk at 248-519-0450.