Happy Summer, everyone. I bet you were thinking: “there is no better topic to celebrate summer than tax reform.” Right? Well, lucky for all of us, this isn’t as much about the policy of tax reform as about what we need to do to follow the new rules and position ourselves differently for philanthropic success. So pour yourself a glass of iced tea, open the window, and let’s talk.
When nonprofit leaders are asked about what their organization is doing as a result of tax reform, the common response over the last six months has been “nothing.” I understand how that can sound like the right answer, especially if you don’t have staff. However, you really can do things right now to adjust to the new rules.
If you do have staff and you are following the new rules from the IRS – everyone should be nodding “yes” at this moment, but if you aren’t sure click here – you might want to find appropriate ways to check in with your staff on the impact they see in their paychecks. From what we’ve been able to learn, most employees saw an increase in their paychecks when changes took effect in February. However, in some limited cases, paychecks were reduced. If this happened to any of your staff, perhaps you can draw from other options to support them if they are struggling. Often the place our sector shines is in flexibility and support even when that doesn’t look like cash.
Undoubtedly Congress continues to hear from groups on every part of the political spectrum about undoing or shifting or creating new pieces of tax reform. If you are curious about the top 15 or so ways that nonprofits were directly affected, the National Council of Nonprofits has a helpful summary sheet. If you are a small nonprofit, many of the benefits that went away likely never applied to your organization. Still, it is good to keep current and just double-check. Important in all of this, don’t ever give tax advice to your employees, donors, volunteers etc. unless you are a credentialed expert. We all have enough work to do without taking on the role of tax advisor.
Two areas that still have our close attention are the potential to repeal the Johnson Amendment, which protects nonprofit nonpartisanship, and changes that will impact philanthropy. On Johnson, yes I thought we were done, too, but guess what? True, it didn’t pass as part of tax reform legislation – yea! But it is still a current topic. If you want to learn more about why the Johnson Amendment matters to you (even if you have never heard of it) click here, and here. While we will also keep you up-to-date on any new threats to the ability of all charitable nonprofits to stay nonpartisan, I hope you are also remaining alert and ready to call our delegation with your concerns. The National Council of Nonprofits is also tracking this issue so there is one more way to stay engaged.
The other issue we all need to pay close attention to is the impact (both positive and challenging) in philanthropy. Last month we celebrated the fun in philanthropy, this month we need to make sure we are doing all we can to be positioned for success. Before we jump into things you can be doing in your organizations, I want to highlight a new bipartisan bill to expand charitable giving incentives in the House of Representatives. H.R. 5771 would enable all taxpayers to deduct charitable donations from their taxes, regardless of whether they itemize. Unlike the former effort on a universal deduction, this bill does not cap the amount.
In describing the bill, Representative Smith (R-NJ) said “Americans have been generous patrons of charitable causes, and we want to ensure that everyone has the support they need to continue their generosity to charitable and philanthropic causes.” Representative Cuellar (D-TX) added, “This bipartisan bill not only encourages us to help our fellow neighbors, but it also makes sure that taxpayers can receive their due deduction for charitable giving if they choose not to itemize.”
Keep an eye on this bill, and we will too. It has the potential to support Alaskans who want the added benefit of tax relief on top of feeling wonderful about the investments they are making in our communities.
What else can you be doing with or without new legislation? Our message is the same as it was in December: stay focused on your donors. Remember that philanthropy means love of humankind and focusing on the people will bring money, but focusing on the money rarely brings people.
However, being donor focused in the age of tax reform means that we have to do things a little differently for our mid-range and large investment donors. Our mid-range donors likely used to at least consider itemizing as part of their tax strategies. To generalize for them, the use of a tax deduction was likely not a motivator for giving, but simply icing on the cake. While this isn’t about whether you can or can’t itemize, it is about whether there is enough incentive to do it with the new reforms. The best national estimates are that only 5% of Americans are likely to itemize. By comparison, about 22% of Alaskans itemized before tax reform. Mid-range donors who still want to take advantage of itemizing may decide to bundle their charitable giving – meaning that they will give two years’ worth of gifts in a single year. High range investors might do the same. This is a creative strategy that we have already seen play out at the end of 2017 and only expect to see more frequently in the future.
What that means for all of us is that if we have not fine-tuned our recognition strategy, then today is the day. Most of us are used to saying “thank you” and engaging in stewardship after a gift is received. But if your 2018 gifts already were given in 2017, then your methods of engaging donors need to keep up. Consider ways to celebrate and recognize donors who are bundling their gifts.
Options could include:
Ann Hale, local Alaskan and current national board chair of the Association for Fundraising Professionals, created a great tip sheet for all of us with more useful ideas.
For those of you with pledge programs, shifting your recognition strategies won’t be as much a stretch but will still take some creativity. But for the rest of us, we have work to do. Another option that our higher level investors will likely use is the donor advised fund. This is a vehicle to make one large investment that gets carried out over time (often measured in years). Many investment firms and community foundations hold these funds which means that depending on how they get dispersed the gift can look like it is either coming directly from the donor or from another source. Again, good relationships and open communication with your donors will mitigate any potential confusion in how to say thank you and to whom, so just stay alert and have a plan. As a side note to all of these predicted changes in individual philanthropy, be aware that all of the national data is based on itemized tax returns and nonprofit 990s. If it turns out that far fewer of us itemize, our understanding of giving in this country and in our state will only get worse.. This means, now more than ever, you must have a good donor database to know your own trends and see your future. Too many Alaska organizations are trying to do individual donor engagement without a database. Today is your day – for so many reasons including this one – to get started on your database. (Need help knowing what questions to ask when selecting a good donor database – click here.)
Tax reform also had the potential to change the giving of corporations and foundations. While I have no news to report on any significant shift in positive investments for Alaska, I do believe this is a possibility. Again, all the rules still apply in terms of approaching a funder with the question “what can we do better together for our community than either of us can do ourselves?” This is a far more successful strategy than thinking of them as ATM machines who have more money to disperse (trust me – this thinking still exists, although thankfully in less obvious forms). Consider projects or programs that the funder is clearly interested in seeing happen in your community and begin the conversation. It won’t be fast but it could yield a win-win-win for mission, the funder, and the community you serve.
There are so many ways to be great advocates and ambassadors to your staff and your donors as a result of tax reform. This conversation is just one of many. Remember that we are all adjusting together. As we learn new ways of working we will share them widely. We hope you will share your strategies, too.
Happy June, everyone. Tax reform will wait for you to go outside, breathe the fresh Alaska air, and drink another glass of iced tea. When you return, if you need some help, give us a call. We will be ready.