The Tax Cuts and Jobs Act brings both pros and cons for nonprofits. Bottom line: there’s an unintended consequence of simplifying the tax code. Not nearly as many in the middle class need to itemize or benefit from itemization. In households earning between $75,000 and $200,000, more than half previously itemized. With the new law, many who gave because of the itemized deduction don’t have that incentive anymore.
While consequences of the new tax law might seem bleak, some types of giving will not feel the hit as badly. I believe that peer-to-peer fundraising will be minimally affected by the new tax law. With these type of fundraising events, donors give because of their connection to the cause. Either a friend connected to the mission asked them to give or they personally care about the cause. The tax deduction was secondary, if it even played a role at all. Nonprofits should look to their peer-to-peer fundraising programs as an opportunity to replace lost revenue from those who only donated for the tax benefit (by itemizing), as well as grow their revenue for the future.
Nonprofits need to see the new tax law as an opportunity, since it really is. With the tax cuts, many of your supporters will be getting larger paychecks and a larger end-of-year refund check. Use this opportunity to ask your supporters to increase their donations to your nonprofit. Don’t wait until the end of the year to start asking your supporters to increase their donations. If your nonprofit is truly promoting the impact of each dollar donated, you’ll have a much better chance of capturing your share of that money before it’s spent.
Don’t be afraid to tell your supporters how deeply the new tax law could affect your organization. The Tax Policy Center notes the new tax law could mean nonprofits will come up $20 billion short this year. When you get across that urgency, you’ll find many supporters are willing to share their tax savings.
Where I see the biggest opportunity for supporters who’ve lost their tax incentives to help make up that income is with DIY, or Personal Campaigns as we call them in DonorDrive. An example is My Miracle Birthday from Children’s Miracle Network Hospitals. Supporters can set up a campaign in honor of their birthday and then ask their network of friends and family for donations instead of gifts. These campaigns are branded and controlled by CMN Hospitals, while supporters give their donations to their local children’s hospital.
For the supporter, Personal Campaigns don’t limit them to simply make a donation. The tools are there for them to easily get their friends to donate. That $100 they gave to get a tax break last year can easily turn into $500 by asking their friends this year. Through a Personal Campaign, that one supporter can make their impact much bigger on the mission this year when you need it most. Peer-to-peer fundraising, through a Personal Campaign or some other event, is the optimum way to do that.
Don’t wait until Q4 to encourage your supporters to start Personal Campaigns. Life events, like graduations, weddings and anniversaries, mostly happen in the spring. At DonorDrive, we’ve found that spring campaigns typically bring in 70% more revenue. This year, with friends and family having more discretionary income from tax rebates in their wallet, we could see that percentage climb even higher.
Use the Tax Cuts and Jobs Acts to change the story that your nonprofit is telling. Remove the tax break angle. Instead, talk about your mission and the impact that donors can have on it. That’s what we’re seeing resonate best with fundraisers and donors today.