Tax Reform: Turn Uncertainty into Opportunity

The tax reform bill that passed last month has the potential to transform the philanthropic landscape by altering the financial incentive to give.  As professional fundraisers, it’s more important than ever before that we proactively make the case for the organizations and institutions we lead.

The War Revenue Act of 1917 established the charitable giving deduction to encourage private philanthropy.  Congress’ action has fueled a philanthropic culture dominated by individual giving (Giving USA cites 72 percent of 2016’s $390 billion in gifts came from individuals). 

The financial incentive to give has centered on itemized deductions that reduce one’s total tax burden.  But now that Congress has doubled the standard deduction for individuals and families, will record US giving levels be stunted?   

The Tax Policy Center estimates that 82 percent of total charitable giving comes from individuals who itemize their deductions.  The Congressional Joint Committee of Taxation says the number of Americans who itemize their taxes will drop from 33 percent of all taxpayers to 5 percent.  Research conducted by the Indiana University Lilly Family School of Philanthropy indicates that giving could drop by $13 billion each year as a result of the new tax bill.   

At the same time, the new tax legislation relaxes the thresholds on inheritance, doubling the exemption to roughly $11 million for individuals.  Will this cause charitable giving to take an even bigger hit?  The Tax Policy Center predicts philanthropic bequests could be reduced by between 15 percent and 30 percent nationally, or roughly $4 billion.

We could be facing a seismic shift in American philanthropic giving.  But as professional fundraisers, we need to be optimistic by nature.  We see the good and work to make our communities stronger.  So, in this time of uncertainty, here are four actions to stimulate—not retract—giving.

Strengthen Relationships

In the coming years, strengthening relationships and keeping donors closely connected to your mission will be more critical than ever before.  People will give where they can have an impact, and hopefully not only because it’s in their financial interest.  It’s time to get back to basics: good ole fashioned cultivation and stewardship.  According to AFP’s Fundraising Effectiveness Project, for every 100 donors gained by nonprofits, 103 are lost.  For every $100 in new gifts, $95 is lost.  In 2018, let’s focus more time and attention on your current donors rather than on the identification of new ones.  Engage in intentional planning to increase your donor retention rates.  The Fundraising Effectiveness Project website (link to is a good place to start.

Make Your Case

For many Americans, particularly those with the potential for major gifts, tax reform will mean significant gains and more disposable income.  Corporations like Comcast, American Airlines, and AT&T have already given their employees bonuses based on their expected tax savings.

Make the case that donors should chose to invest some of their new income in your mission.  Philanthropic giving is not always top of a prospective donor’s mind—it’s up to us to stay relevant by communicating the good we do. 

Stop Focusing on Transactional Giving

As part of the new tax law, donors will no longer be allowed to deduct the cost of season tickets for athletic events.  While this decision is obviously unpopular with advancement officials, it forces us to get past the quid-pro-quo of giving.  To even the most well-intentioned donor, tickets are a perk, not philanthropy. 

Tax reform will force the reorientation of our messages.  Moving away from transactional giving—the same kind we see at galas, silent auctions, and corporate sponsorships—will hopefully encourage us all to show donors the real impact of their investment.  Long-term, substantial giving is rooted in far more than swag, entertainment, and giveaways.

Stay Informed; Keep Your Donors Informed

There’s still a lot we don’t know about the particulars of the new tax law.  It’s your responsibility to keep abreast of how it will impact your organization.  It’s also critical that you keep communicating with your donors.  If you don’t, another organization will. 

Official tax tables won’t be published by the IRS until the end of January, but here are articles to keep you informed.

The Opportunity to Inspire

As the ambassadors of philanthropy, our mission is a noble one.  Now more than ever, we must channel our collective efforts to encourage investment in our causes.  Tax reform may seem like a challenge to nonprofits, but there is always a silver lining.  Inspire your donors to give because they can make change, not just because it’s in their financial interest.


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