For the first time since the Tax Reform Act of 1986, Congress has made major changes to the U.S. tax code. As a fundraising pro, you’ll want to start thinking now about how this might impact charitable giving.
We’ll leave the game of predicting overall economic impact to the economists. My purpose in this post is to help you keep your marketing and fundraising focused through the transition.
What people are saying…
While it may be too early to know for sure how the tax change will affect giving, two groups of observers — the academics and industry observers and the practitioners — are expressing competing viewpoints:
Some academics and industry observers are running the numbers and reaching the conclusion that giving will be hurt. For example, the respected Indiana University Lilly Family School of Philanthropy predicts charitable giving to organizations to decline by 4.4%.
But as fundraising practitioners who have studied donor behavior and experienced our share of natural disasters and political reforms — we have a more positive outlook: Keep calm and fundraise.
Many of us lived through the 1986 tax code change. We’ve also fundraised through countless natural disasters and election cycles, not to mention the dramatic demographic and channel/media/technology shifts bringing massive upheaval to the fundraising landscape. We’ve observed that cautious ministries, those that made cuts to limit their exposure, are more often than not hurt by their timidity. But ministries that stayed the course tended to weather the storm better.
5 steps you can take now…
Step #1: Be confident
Steve Woodworth, president of Masterworks, has watched Christian donors closely for decades. He summed the potential impact of the tax law change up by saying, “Survey after survey of Christians shows tax consideration way down on the list of motivators, if it’s on the list at all.” They’re motivated to change the world according to their values.
Therefore, I believe your stance should be optimistic and confident. You know your cause is more important than the vagaries of tax and finance. We can fairly assume many of your best donors share that view. So fundraise boldly.
In January 2018, the IRS released new guidelines for employers withholding income tax from employees. Chances are your donors are already seeing higher take-home pay. Messaging that says, “If you feel extra blessed…” will speak to this reality.
Step #2: Stay close to your donors
The change in itemization will likely affect very few of your donors. Steve Woodworth: “Mid and major donors who have $24,000 or more of deductions (charitable gifts and all other deductions) will still itemize. The tax code won’t affect their charitable deductions. Donors who have LLCs or C Corporations will end up paying less taxes.” All in all, even if taxes are a motivator to some of your donors, the change affects few of them. If you have a close relationship with these folks, perhaps they’ll volunteer how they’ve been affected.
For general donors, it’s important to closely monitor the margin of your campaigns. You may already do this. But here’s what to watch for: If you see negative effects, they’ll show first with those on the periphery — lapsed donors, for example.
If you see the performance of these marginal audiences drop below acceptable levels, be prepared to reduce investment. Also, consider looking at appended data or talking with donors as you make adjustments. This is a prudent hedge to our exhortation to fundraise with confidence.
The one group that may experience a hit is the folks between general and major. These mid-level donors previously itemized and gave with the understanding that with the tax advantage, overall they’d pay less than the value of their gift. But with the threshold for itemizing increasing, their cost of giving goes up.
At Masterworks, we believe Christians give to further the Kingdom, rather than to avoid tax consequences. However, the donors in the middle will feel more pressure. Your best action is to double down on your mids to ensure your ministry is at the top of your donor’s list when she winnows the number of organizations she gives to.
Now is a great time to review your mid-level donor program, or start one if you haven’t already. Have your mid-level reps reach out to their assigned donors regularly, to thank and affirm, to provide human support to mid-level fundraising campaigns, and to listen. A human connection is the active ingredient that distinguishes a mid-level donor program from a general donor one.
Step #3: Fine tune your DAF strategy
Donor Advised Funds (DAFs) have been growing rapidly. Some observers suggest the new tax law will encourage even more giving to these funds for tax advantage. Are you talking to your donors about how the money sitting in their DAFs could be put to Kingdom use?
Step #4: Get schooled
Understand the tax law changes, so you can converse confidently with donors. The new rules and requirements of the charitable contributions tax deduction aren’t that complicated. Your knowledge of these changes will go a long way with donors who have questions.
Step #5: Monitor and adjust
Keep a close eye on your fundraising programs. A favorite client of mine once said, “No plan survives first contact.” Stay the course, but be ready to make course corrections.
BONUS Step: Talk with Masterworks
In short, the fundamentals of generosity won’t change. That means your best strategy is to stay close to your donors, follow proven practices and actively innovate where it makes sense.
That’s what Masterworks does for dozens of successful organizations. And we’d love to help you too. Feel free to contact me at firstname.lastname@example.org.