Tax reform to decrease donations, trigger new giving strategies, experts say

• DOI: http://doi.org/10.1002/nba.30423
• Published date: 01 March 2018
• Date: 01 March 2018

MARCH 2018

5

NONPROFIT BUSINESS ADVISOR

© 2018 Wiley Periodicals, Inc., A Wiley Company • All rights reserved

DOI: 10.1002/nba

Fundraising

Tax reform to decrease donations, trigger new

giving strategies, experts say

While the overall economic impact of the tax

overhaul passed by Congress at the end of 2017 may

be unclear, the ramications for the philanthropic

community are more or less agreed upon: Charitable

giving among Americans is likely to decline in 2018,

with estimates ranging from about 1.7 percent up to

5 percent compared to 2017. That’s mainly due to

provisions in the new law that double the standard

deduction. With a higher standard deduction, fewer

taxpayers will itemize their deductions, and the tax

incentive for donating to charity goes away.

According to analyses of the law by experts from

numerous philanthropic groups—including the Inde-

pendent Sector, the Lilly Family School of Philan-

thropy and the Tax Policy Center—the end result will

be a decline in charitable contributions on the order

of $13–20 billion per year.

While the specter of such a dramatic drop in dona-

tions is worrisome, the Association of Fundraising

Professionals cautions nonprots against taking too

dire a tone in communications with prospective do-

nors. In guidance issued by the group addressing the

tax-reform package, the group reminded charities and

funders that it’s important to stay optimistic moving

forward. http://ASmallChange.net.

“While many charities may focus on the difcult

challenges ahead, it’s important that they balance that

sense with optimism about how they’re still making

a difference and changing the world,” the AFP said.

“Donors need to know about the obstacles charities

face, and organizations should be realistic about their

situations and the needs of communities. But donors

don’t want to be overwhelmed all the time with nega-

tive images.”

The group also pointed out some ways in which

donors might change their giving strategies, aside

from simply decreasing the amounts they donate.

These include:Nonprot Business Advisor

• Giving appreciated investments, such as shares

of stock. Donors can take a deduction for the full

market value (with some limits), while not having to

pay capital-gains tax on the appreciations.

• Exploring how to contribute through their Indi-

vidual Retirement Accounts. Donors age 70½ or older

can contribute up to $100,000 of IRA assets directly

to one or more charities and have the gift count

toward their annual required distributions from the

IRA and removed from their taxable income.

The AFP also noted the other half of the tax-re-

form package—the steep drop in corporate tax rates.

That could present charities with opportunities for

additional funding from the corporate community,

the AFP said.

“With the tax bill lowering corporate tax rates,

charities may nd more funding and resources from

corporations if they can develop effective partner-

ships that make sense for both organizations,” the

group said.

In addition, the group said, wealthy individuals

might respond to the changes in positive ways. These

donors, who overwhelmingly itemize, will still be able

to take advantage of the charitable deduction, and may

be willing to make larger, major gifts, the group said.

However, those on the lower end might end up

“bunching” their donations to gain the biggest tax

advantage possible. That means instead of making,

say, $1,000 in donations in each of the next two or

three years, they might instead combine them in the

third year to get $3,000 on one tax return—so that

their deductions are so high they can take advantage

of the charitable deduction and itemize their gifts.

Given their funding needs, the AFP said, most

charities would nd it hard to “wait around” for a

couple years, even if it meant a larger donation. But

they might need to adjust to this, at least on some

level, or communicate with their donors just how

difcult that would make long-term planning and

curtail their ability to respond to unexpected surges

in demand for their services.

In the end, the AFP said, charities that most effec-

tively engage donors and tell their stories of impacts

and outcome will fare best.

“No matter the tax code or the economic environ-

ment, charities that can connect with donors, show

the impact of their programs and inspire donors to get

involved will always be successful. Charities should

be focusing on how donors can make a difference,”

the AFP said.

For more information, visit http://www.afpnet.

org. ■