How Charities are Motivating Donors Under the New Tax Law
For charities, the Tax Cuts and Jobs Act enacted in December 2017 has sparked soul searching and creative solutions as concerns grow about giving challenges. With the increased estate and gift tax exemption amounts, the expanded standard deduction available to individuals for federal income tax purposes and the reduced corporate income tax rate, many charities are rightly concerned that these tax law changes may result in reduced contributions in 2018 and thereafter.
Outlined are potential considerations for charitable entities that need to address giving challenges:
- Continue to advocate to donors to make required minimum distributions (RMDs) from IRAs directly to charities. Donors ages 70 ½ and over who make RMDs totaling up to $100,000 per year are not impacted by the tax changes to charitable contributions because these RMDs avoid the donor's income tax return entirely. You may see fundraising organizations in your area promoting such IRA programs to charities.
- Educate donors about the strategy of "bunching" deductions and then foregoing itemizing deductions in "non-bunching" years, using the dramatically increased standard deduction instead. Donors who do not want to have such uneven contributions to favored charities should instead consider use of a donor advised fund. Donors can make contributions to such funds every other year but make level annual distributions to their favored charities. Donor advised funds have exploded in popularity but the IRS is taking the position that such funds be restricted to gifts for which the donor receives no goods or services in return.
- Resurrect or continue "gala" type events. Even though donors to such events do not get to deduct the fair value of what they receive and in spite of the charitable deduction being less value to them, many donors embrace these types of events for the social aspects.
- Promote monthly withdrawals or automatic payments from bank accounts or credit cards (so called "sustained giving") as an alternative to annual fund raising campaigns. Sustained giving is not so much income tax deduction driven and will more likely continue in the future. Once automatic payments are authorized, the charity is not required to periodically solicit the donor for additional contributions, so hopefully the donor will continue to authorize them, creating the sustained giving.
- Advocate and engage donors on their dedication to your cause. Remind them of the importance of your mission, regardless of the availability of a charitable deduction for their contribution.
- Encourage the use of estate tax driven or income tax driven gifts in the right circumstances, such as donor advised funds discussed above, charitable remainder trusts or charitable income trusts.
To discuss which options may be most advantageous for your charitable organization, contact Charley Jensen, Sarah King, David Naples, Kent Stallard, Lowell Stortz or the Stinson Leonard Street contact with whom you regularly work.