Nearly four months ago, Congress passed the Tax Cuts and Jobs Act of 2017 (TCJA), legislation that could impact charitable giving in a number of significant ways. By now, we’ve all heard the projections: itemizers could decrease by 27 million and giving could drop by as much as $20 billion in 2018.
Since the bill’s passage, nonprofits have taken action to dampen the effects of these worrying statistics. Many organizations encouraged donors to give before the end of 2017 to receive the greatest tax benefit for their contributions; we shared similar advice last December.
More recently, a number of state legislatures from California to New Jersey have considered bills that create workarounds for the TCJA’s $10,000 cap on deductions for state and local taxes. Under these bills, individuals would make contributions to certain government funds and receive a charitable deduction. (It is unclear whether these workarounds will be sanctioned by the IRS.)
Amidst this flurry of activity, a host of unknowns remain—open questions that have the potential to influence philanthropy and the nonprofit sector at large:
- How will individuals and families respond to losing the tax incentive to give? Will the doubling of the standard deduction and the estate tax exemption prompt donors to reduce their giving?
- If the new tax law does impact charitable giving, will the effects be felt evenly across the sector, or will certain organizations bear the brunt of the impact?
- Will the TCJA launch a period of accelerated economic growth, increasing Americans’ disposable income? If this happens, will people respond by giving more to the causes and organizations that matter to them?
- Will social programs be cut to reduce the budget deficit created by the tax law, increasing the need for nonprofit support and placing greater demand on certain organizations?
These questions won’t be answered for months—and, in some cases, years—but there are several fundamental steps all nonprofits can take to prepare for the effects of tax reform:
Focus on your case for support
In communicating with donors, now is the time to emphasize your case for support—why your mission matters and what makes your organization capable of doing this important work. Tax incentives are not the sole reason people give, and there is strong evidence that they are not donors’ primary consideration, either.Over the 41 years Campbell & Company has worked with nonprofit organizations, we have observed that the emotional impulse to give usually comes first. Additionally, in the 2016 U.S. Trust Study of High Net Worth Philanthropy, receiving a tax benefit did not rank in the top three motivators for charitable giving. People make philanthropic gifts for a number of reasons, so remind your donors why they care about your cause. Your case for support is a powerful driver of donors’ thoughts about giving, and it’s completely under your control.
Educate your staff about the new tax law
It’s imperative that your development team be able to speak knowledgeably about the TCJA provisions that could impact your organization. Encourage your team members to follow developments in tax reform; the National Council of Nonprofits’ collection of resources is a good place to start. By staying informed, your staff will be able to adjust strategies as needed and talk with supporters about the TCJA and how it may affect your organization.
Communicate with your donors about tax reform
While you should never offer tax advice to donors, make sure you’re maintaining an open dialogue with your supporters about the TCJA. From your major gifts to your annual fund, donors need to understand the challenges your organization faces going forward. You can also use this opportunity to share and discuss the impact of their gift. If your mission is a top priority for them, they may be inspired to give more in response.
Advocate for the nonprofit sector
Tax reform presented a critical opportunity for nonprofit advocacy, but the voices of leaders from our sector are still needed. Strive to build relationships with your local, state, and federal lawmakers. Every chance you have, articulate why your organization’s work is important—and why the nonprofit sector is an indispensable part of our economy and our society.
When it comes to tax reform, so much remains in flux four months later. By staying knowledgeable, active, and on mission, you can prepare your organization to navigate the months and years ahead.