The new tax law passed in December 2017 is complex, and will at the very least mean less for many, including nonprofits. Many people believe that as tax-exempt entities do not have to worry about the impact of this new law, but they do. Here’s why.
Deductibility of Charitable Contributions--Alternative Minimum Tax (AMT): About one third of taxpayers currently itemize their deductions, including for charitable donations. Under this new tax law, only approximately five percent of people will itemize their taxes. This means that millions of Americans who currently claim their charitable deduction will lose it since the law doubles the standard deduction that taxpayers get in lieu of itemizing to $12,000 for individuals and $24,000 for couples. This makes it more attractive to not itemize. According to the Lilly Family School of Philanthropy at Indiana University, this change could mean a reduction of up to $13 billion a year in charitable giving and 28 million fewer Americans itemizing their returns; this doesn’t mean that people would stop giving, just that they are likely to give less.
Unrelated Business Income: A nonprofit is no longer able to use losses from an unprofitable unrelated business to avoid tax liability on another profitable unrelated business it operates.
Interest Income from Bonds: Many nonprofits use tax-exempt “advance repayment bonds” to refinance bonds used for capital projects. Investors benefit from the interest on those bonds being tax exempt and nonprofits benefit because the investors are willing to accept lower interest rates for tax exempt bonds than they would for typical bond investments. This results in lower interest payments for the nonprofit, thus reducing their cost of borrowing. Under the new tax law, interest paid to advance replacement bond investors is now taxable, forcing nonprofits to pay more interest to compensate for the investor’s tax liability. While this will increase federal tax revenue, it will likely have a negative effect on the bottom line of nonprofits.
But don’t despair. The new tax law and the new year are great reasons to review your fundraising program.
Set Your Goal: What is your revenue goal for the year? Is it realistic and achievable? Is it based on data and realistic assumptions or did you arrive at it because you think that is how much you should raise? Take a look at your staff resources, how much you raised last year, what your pipeline looks like and come up with a realistic number. Then share it with those in your organization and own it. This is what you will accomplish for the year and everyone should be on board with it since fund development is everyone’s responsibility.
Plan: If you haven’t already prepared your annual fundraising plan, stop reading and go do it. As cliché as it sounds, your fundraising plan is your roadmap to success. You’ll know where to focus your energy and will be able to control your workflow. You will have time to plan ahead so that each strategy does not become overwhelming. A fundraising plan will take you out of the reactive mode. Instead, you will be proactive, initiating deliberate strategies that will lead you to success. And more importantly, you’ll raise more money!
Track: The great thing about having a fundraising plan is that you can track your success. Evaluate your plan quarterly. Have you engaged more foundations? Are you on track with your proposal submissions? Are you getting more donors? Are you retaining old ones? Are you increasing the number of recurring donors? Are you working your strategy for your individual donors? If you are not meeting your goals, review your actions and make adjustments as needed.
Use Social Media Wisely: Remember that social media is about building relationships and communicating with your followers. Although social media it is not always great for getting donations, it is excellent for introducing people to your organization and your cause, spreading information about your work and making people feel that they are part of something bigger than themselves. It is a great medium for nurturing and deepening relationships with individuals over time, some who may eventually give .
Love and Nurture Your Donors: I say it often and I cannot say it enough. Fundraising is about relationships. People give because in our hearts we all want to have an impact on the world around us. We want to know that we are changing lives and making the world a better place. Tell your donors often how their donations are creating change. Show them their dollars at work. Speak to them often and boldly. They are the ones that make your work possible. Don’t forget it.
Collaborate: Seek out other nonprofits, corporate and foundation partners who share a passion for your work. Find ways to develop collaborative programs that may resonate with your funders. There is value to collaboration as it provides diversity of skills, may provide opportunities for shared costs and higher levels of impact.
Have a happy new year and get out there and fundraise!