Since the Tax Cuts and Jobs Act (TCJA) was enacted in late 2017, some aspects of charitable giving have changed, but not exactly in the way some nonprofit watchers predicted. Because the TCJA widely reduced the motivation for donating to charity, many observers forecast that annual donations might plummet. But so far that hasn’t been the case.
For example, the Giving USA website reports that 2018 contributions declined only 1.7%, when the total dollar amount was adjusted for inflation. However, 2018 was only the first full post-TCJA year. The jury is still out for contribution totals in 2019. Nonetheless, in a post-TCJA world, there are certain “truths” we know for sure, and they may help you in upcoming fundraising efforts.
- Microdonations make sense
Microdonations are a small but mighty tool. Some nonprofits have found it worthwhile to devote resources to securing gifts in increments so small that donors don’t think twice about making them. A callout for $5 donations sent via text or an app, or an automatic $10 monthly donation from a checking account or credit card, can produce a nice chunk of revenue for minimal effort.
This method of donation has proven particularly popular with younger donors who appreciate the ease. Getting these donors invested in your organization when they’re still in their early earning years can pay off in the future when they may have the potential to become major donors. And who, regardless of age, wouldn’t be tempted to donate “loose change” to your organization?
- Donor-advised funds have appeal
Donors can get an immediate tax deduction for contributions to a donor-advised fund (DAF). And they can keep the advisory privileges for fund distributions and asset investments.
By making significant contributions to a DAF in a single year, a donor can exceed the standard deduction threshold. This allows the taxpayer to itemize and obtain a tax benefit from charitable donations. The donor can advise the fund administrator to distribute the funds to your nonprofit annually in increments. This allows you to receive a steady stream of donations.
- Donation “bunching” works
It’s been estimated that the number of households claiming charitable deductions will dramatically drop because fewer taxpayers will itemize. But, if typical donors bunch their donations similarly to how those with DAFs do, they may accumulate enough charitable deductions to push them over the standard deduction in some years.
For example, a donor who typically contributes to your organization at year end can instead bunch donations in alternate years (for example, January and December of 2020 and January and December of 2022). Or a donor could make several years’ worth of donations in one year. The donor still gives the same total amount as in the past, but without sacrificing the charitable deduction.
- Retirees are a natural target
Donors age 70½ or older may qualify to transfer up to $100,000 to qualified charitable organizations (other than DAFs or private foundations) every year from their traditional or Roth IRA accounts. Married couples can distribute as much as $200,000 annually, if no more than $100,000 comes from each person’s own IRA. There are some restrictions for 509(a)(3) supporting organizations.
Although no charitable deduction is allowed, the distribution isn’t included in the taxpayer’s adjusted gross income (AGI). That’s because the IRA trustee makes it directly to the charity. This strategy reduces the donor’s taxable income, possibly enabling him or her to qualify for deductions subject to AGI floors and avoid the net investment income tax. The distributions count toward the donor’s required minimum distributions from IRAs.
- Board members are vital
Traditionally, fundraising was considered a key responsibility of a nonprofit’s board of directors. This obligation has fallen by the wayside at some organizations, as duties related to governance and ethics have gained in prominence. Now is the time to gently remind your board members of the vital fundraising role they play.
Ask them to reach out to their connections, and make it easy for them to do so. You can provide them talking points, statistics, outcome reporting and materials they can use to persuade potential donors of the value of your group’s work.
To learn more about how our firm can serve your nonprofit organization, please contact Dave Wolfenden at (302) 254-8240.