Like many other households, we recently completed our tax returns for the 2018 tax year. Along the way we discovered something new as part of the 2017 tax reform law: the donation receipts we hung onto throughout the year were basically irrelevant. No longer could my wife and I individually deduct the support we provided to an array of tax-exempt, 501c3 charitable organizations. Our standard deduction would far outweigh our charitable contributions.
I was a little taken aback at this: Not only might it change the calculus for our giving approach, it also might change the incentive structure for the entire $390 billion nonprofit industry. Dec. 31 was always a big day for us to make those tax-deductible gifts. For nonprofits, it was a date that meant everything—one last call for donations and often a day that could make or break your annual revenue goal.
So I read up on the new tax code so you don’t have to. I summarized what I found here—and what the implications may be for nonprofits—with some inspiration from the Wu-Tang Clan, which recently celebrated the 25th anniversary of the classic rap album “Enter the Wu-Tang: 36 Chambers.” Because, truly, cash rules everything around me.
“It’s been 22 long, hard years, I’m still strugglin’. Survival got me buggin’, but I’m alive on arrival.”
My wife and I aren’t alone when it comes to taxes this year. The number of households claiming an itemized deduction for charitable purposes is projected to drop from 37 million to 16 million, according to the Tax Policy Center of the Urban Institute and the Brookings Institution. The law increased the standard deduction to $12,000 for singles and $24,000 for couples. For anyone giving less than that—and let’s face it, that’s most of us—it’s no longer advantageous to list all the charitable gifts we made throughout the year.
“If what you say is true, the Shaolin and the Wu-Tang could be dangerous”
The financial repercussions for charities are potentially enormous. The Tax Policy Center estimated the new law would reduce charitable giving in 2018 by between about 4% and 6.5%, equating to billions of dollars. That’s why the charitable sector advocated vigorously against these changes.
Tax incentives aren’t the only reason people give, though. Commitment to the cause and organizational impact and effectiveness are still key drivers, experts say. The Dec. 31 deadline acted as a reminder to give, but often wasn’t the main motivation. For us it was a nice tradition to look back on the year’s gifts, especially coming on the heels of the holiday season.
“The Wu is too slammin for these cold killin labels. Some ain’t had hits since I seen Aunt Mabel.”
How else might this not be bad for nonprofits? One fundraising friend believes that these changes won’t make much difference at all, especially for the wealthy “1% crowd” who largely won’t be affected. He also believes that foundations and corporations will continue at their same levels.
Further, the new provisions sunset in 2025, and incentives actually went up for those wealthier households that itemize deductions. For the middle class itemizers, donors may “bunch” their donations into one year so that they can exceed the itemized deduction threshold and claim additional benefits. Individuals also might begin pooling money into donor-advised funds and family foundations. On the other hand, bunching and pooling would have an effect on those nonprofit cash flows, which already rely on a surfeit of funds coming in each December.
“Reunited, double LP, world excited. Struck a match to the underground, industry ignited.”
With a nod to “Wu-Tang Forever,” what to do about all this, aside from riding it out until 2025? My thought as a donor is to continue to make gifts in the December timeframe—on Giving Tuesday and in the last week of the year so that organizations have the cash to keep operations running smoothly. Cash does indeed rule everything around me.
Nonprofit themselves should be aware of these changes and recognize that Dec. 31 may have some reduced importance. But also that people may not be that likely to change their behavior.
Communicate to your supporters about the law and continue demonstrating your impact. The causes we’re working on are too important to do otherwise.
After meeting with several nonprofits recently and now coaching one for Social Venture Partners’ Fast Pitch competition, I’ve detected a theme: Many are having a hard time identifying resources. So today’s post will feature some insights from my experiences and from research. We’ll center in on individual donors for this post, but many of the lessons here can apply for corporate, foundation and other relationships as well.
With March Madness coming up, here are six ways to strengthen donor relationships with an assist from the 1986 classic basketball film Hoosiers.
1. “I’ve seen you guys can shoot, but there’s more to the game than shooting. There’s fundamentals and defense.”
Retention first. Board members, past donors, volunteers, staff and even family members must be a strong base of support. If people are already giving, your job just got easier. The 2015 Giving in Chicago report looked into why Chicago donors stopped giving. Of the households that stopped their giving, the most often cited reason was discontinued involvement with the organization. The key to retention is regular contact, and the study found that one of the chief reasons for attrition was a lack of proper communications with donors. People who give to your cause want to know that they are changing lives and that no money is wasted.
2. “You have special talent, a gift. Not the school’s, not the townspeople, not the team’s, not Myra Fleener’s, not mine. It’s yours, to do with what you choose.”
Reframing asks. Asking for money can certainly be intimidating. After all, it’s one of the most sensitive jobs we face. I’ve found success in thinking about requests less as requests than as a means for connecting people to causes. People are looking to help, and nonprofit leaders have the information available to help them make an informed choice. Not giving to charity might be the default option for many people—and the easier path—but for your potential supporters it’s likely they are open to making a choice. In that case, it’s reasonable to assume that asking for a gift wouldn’t be a nuisance and may even be welcomed.
3. “I don’t know why Cletus drug your tired old bones in here, he musta owed you somethin’ fierce.”
What’s the story. As stated before, stories with clear drama and a compelling conclusion are an age-old means of connecting with others. Former GE CEO Jack Welch used to say he told some of the same stories for 20 years to connect with employees on a values level and sell his vision for the company. Stories don’t have to be complicated, or in Welch’s case particularly fresh, but they do need to be personal. Sometimes even a mundane story—how you chaperoned your kid's field trip—can show a bit of humanity and wit and help people open up. Now convey all those values-based stories across your communications and you’ll have a wonderful opportunity to connect with a high number of donors.
4. “Welcome to Indiana basketball.”
Experiencing the mission. This might be my favorite scene in the movie, when Coach Norman Dale walks into a packed Indiana gymnasium for his first game. Organizations might not have the gym that Cedar Knob had, but those that do have visitor and volunteer experiences may have an advantage in garnering financial support. The feelings, emotions and senses from a volunteer session or a tour can strengthen bonds with your mission. For organizations without ready experiences, events can be a way to curate something that’s tangible. Data, imagery and presentations at events can leave a similar impression and open the door to deepening relationships.
5. “Sun don’t shine on the same dog’s ass everyday, but, mister you ain’t seen a ray of light since you got here.”
Day-to-day involvement. Opal Fleener offered valuable insight into the situation facing Coach Norman Dale. Indeed, a meeting providing an update on the organization and soliciting input can be very effective. Be open to a prospect’s ideas about the organization and even a few criticisms, too. That leads to lasting connections with the work and provides natural touch points in the future. A new strategic plan, campaign or program can be the perfect entrée into the organization and its thinking about the mission.
6. “Boys, we’re gonna run the picket fence at ’em. Now, don’t get caught watching the paint dry.”
Immediate follow-up. Make the most of a recent meeting or volunteer experience by personally following up with an email or note--quickly. Wharton School at the University of Pennsylvania released a study last month on the giving habits among patients of a university hospital system. Researchers found that giving requests that came more than 30 days after a patient experience decreases the likelihood of donation by 30%. The researchers state that the timing of a solicitation relative to a recent interaction can affect generosity. Keep the momentum going with donors by making a request quickly.
Nonprofits have a great opportunity to identify resources for their cause, especially in a market as wealthy and generous as Chicago’s. Taking even a few of these steps could help you become even more effective at generating revenue and executing your mission.