Nonprofit Strategies Post-Tax Reform

Posted on: 1/3/19 by Christopher J. Healy, CPA, CGFM

Changes in the 2017 tax reform law call for nonprofits to reconsider their donor strategies to account for fewer taxpayers using the charitable deduction. There are several strategies your nonprofit can employ to offset the uncertainty about how charitable contributions may be impacted.

The Tax Cuts and Jobs Act (TCJA) raised the standard deduction and capped certain other tax preferences. As a result, the Joint Committee on Taxation estimates that the number of filers who itemize will drop from approximately 30 percent to 13 percent. Fewer itemizers means fewer people can claim the charitable deduction on their tax return.

Reinforcing the Importance of Your Nonprofit’s Mission

To ensure that your nonprofit’s finances aren’t negatively impacted, donor stewardship should put a greater emphasis on the importance of your nonprofit’s mission rather than the tax benefits of a donation.

Before the TCJA went into effect, many people who couldn’t use the charitable deduction still gave money to causes they felt were important. Additionally, most individuals will have higher after-tax income because of the law. A report by Fidelity Charitable, “Overcoming Barriers to Giving,” estimates that 65 percent of donors would give more if provided greater insight into how their donations were used.

For donors who lose the ability to itemize, send more personalized communications and, when possible, include an emotional story that demonstrates how their gift is making a difference. Also highlight how the donor’s goal for the gift is highlighted. If a donor is giving to support specific research on an issue that’s impacted them personally, their thank you note should reflect that. Reiterating that their donation will go toward what they care about will increase their confidence in your organization.

Use Data to Create More Accurate Donor Profiles

Technology has made it easier than ever for nonprofits to gather and analyze large amounts of data. The right software tools can help your nonprofit use that data to lower the cost and resources of earning each donation.

Customer relationship management software, offered by firms such as Salesforce, Microsoft and Oracle allow your nonprofit to more effectively track and individualize outreach to different donors and constituents. There are also groups like npENGAGE, Guidestar and WealthEngine that can use data to build specific donor profiles that increase your understanding of your audience’s finances and preferences.

High-Dollar Donor Strategies

Although the new tax law will reduce the number of taxpayers that itemize, it also includes changes that may provide more flexibility for some of your nonprofit’s high-dollar donors. The TCJA increased the income cap for annual donations from 50 percent to 60 percent of adjusted gross income. The law also repealed the “Pease” limitation, which limited the value of itemized deductions for higher-income earners. This means that wealthy donors could make larger contributions in a given year.

For example, under the new AGI cap, a household with $2 million in income could now donate an annual maximum of $1.2 million, a 20 percent increase from the previous cap. And households that were previously precluded from claiming a charitable deduction because of the Pease rule now have more flexibility to take the deduction for more of their giving.

Although the TCJA will decrease the tax benefit of charitable contributions, it’s not certain that this will prompt individuals to give less to charity on the whole. With the right messaging and personalized outreach, your nonprofit can adapt to these changes without the negative financial impact some predict.

Why does donor retention present such a difficult challenge for nonprofits? One report by a lead researcher in donor loyalty reveals that it’s also the greatest priority—according to the study, up to 50 percent of donors leave after their first year of giving. In the for-profit sector, 68 percent of consumers leave businesses because the company did not follow up.

The reasons why donors stop supporting organizations include:

  • They are no longer able to afford a donation
  • They don’t remember donating the first time
  • They support the cause in a different, nonfinancial way
  • The nonprofit was not transparent in how its previous donation was used

No matter the reason for leaving, nonprofits should realize that donor stewardship should begin the moment a donor makes their inaugural contribution. With ongoing communications, a donor will continue to be loyal to your organization.

Where should you start? First, your nonprofit must understand what inspires and motivates your first-time donors. Then you can develop strategies to nurture and engage with first-time donors in a personalized, positive way, making them lifelong supporters of your cause.

Relationship-Building from the First Moment

Think about the beginning of any new relationship. We all know it’s important to be enthusiastic when you converse, listen attentively and empathize. Donors must be treated in the same manner to engage their emotional connection to your cause. Think of a first donation as a step in a new friendship or relationship; it’s not simply a business transaction. While it may take more time and energy than other strategies, it will inevitably boost retention rates in your newest givers.

Make the First Moment Their Best Moment         

In addition to building a relationship from the first moment, nonprofits must focus on making the entire giving experience easy, simple and rewarding. If the process of donating isn’t an experience that the donor wants to repeat, you’ve lost their support. Making improvements to the process, such as offering multiple donation channels without having to set up an account, will make it more likely that a new donor will stay with your organization.

Organize Volunteer Activities Based on their Interests

Once a new donor gives to your nonprofit and fills out your forms, you will likely be able to gather information on the individual that reveals their skills, backgrounds and interests. If you have a group of first-time donors who are members of the same chamber of commerce, why not organize a volunteer afternoon working with local businesses? This way, you will pique the interests of your newer members, enticing them to spend more time with the other people involved in your organization, which will make them further connected to your cause. Personalization works as a great strategy for establishing loyalty with donors.

To retain first-time donors, successful nonprofits will make every interaction – from the very first moment – something the donor enjoys and remembers. Just as businesses follow up with customers, nonprofits can nurture donor relationships by using personalization. These strategies will lead to more investment in your nonprofit, both financially and emotionally, by first-time donors.

For questions on these strategies, please contact your Marvin and Company, P.C. representative.

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