I’ve written about some of the new charitable deduction opportunities included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed on March 27, 2020 before. But a recent post shared by Greg Warner of Market Smart — Dr. Russell James’ tips to help donors give wisely before this year ends — plus a recent conversation with a financial advisor, reminded me it’s a very good time to share with you again.
You see, there are several things that will impact donor deductions – THIS YEAR ONLY. It’s good for you to be aware of these as a fundraiser, because making your supporters mindful of these opportunities may lead to them making more, and larger, gifts to your organization.
Of course, you’re not in the business of offering legal, tax or financial advice. And it’s easier to tell yourself donors’ own advisors will likely tell them about these new provisions. And that “this isn’t really your responsibility.” Yet…
Not all of your donors have their own accountants or financial advisors.
And not all tax advisors are up to snuff, especially when it comes to charitable deductions. Do you want to risk not receiving generous gifts you could have otherwise received, just because you’re too lazy to share this useful information?
The Genuine Job of the Philanthropy Facilitator
Sorry about using that “L” word, but too many fundraisers (IMHO) don’t 100% understand their job as a philanthropy facilitator. Do you?
Your job is to do everything within your power to make giving easy, joyful and meaningful for your supporters. Everything. Doing everything means more than:
- crafting a compelling case for support;
- writing an emotional story;
- packaging all the elements of a persuasive, gripping appeal;
- assuring landing pages and donation forms are donor-centric, and
- assuring web pages display optimally on mobile devices.
Some fundraisers don’t even do the obvious things. They stop at the first two, reasoning the third is best left to marketing staff and the last two are best left to marketing or digital/technology staff. No fundraiser should reason thusly.
Do you really want the success of your appeal to rest on your assumptions you’ll get your best results by delegating responsibility to oversee critical elements of the process to non-fundraisers?
Only fundraisers are laser-focused on what donors need and want vs. what is aesthetically pleasing and/or technically feasible.
Your job as a philanthropy facilitator is to persuade donors to make their most generous gift. And then to reward them for so doing.
This means using every tool in your toolbox to optimize your chances to secure this most generous gift.
Sure, you can ‘get away with’ doing less. You likely won’t be fired if your average gift is $100 rather than $300. But… come on!
Ask yourself this question seriously: Why am I in this work?
If your answer is any of the below, then continue doing what you’re doing. (Just don’t tell your boss this is how you feel)
- “It’s just a job.”
- “I want to make a difference, and not work as hard as I would in the for profit sector.”
- “I want to make a difference, but I’m not going to do anything not in my job description.”
- “I’m really good with people, and in this job I don’t need to learn other skills/bone up on stuff that doesn’t interest me.”
If your answer is any of the below, then consider everything you can do to facilitate increased giving by genuinely helping your donors meet as many of their needs as possible.
- “I want to help as many people as possible who rely on our programs/services.”
- “I want to create a vibrant, caring community to fully address pressing problems.”
- “I want to help people find meaning and joy through philanthropy.”
- “I feel a calling to do this work.”
You Don’t Have to Feel a ‘Calling’
I do suggest, however, you’ll find much greater personal and professional satisfaction in a job exceptionally well done than in a job just ‘phoned in.’
There’s no reason you can’t answer the question of why you’re in this work simply with: “To bring satisfaction, joy and purpose to myself and others.” Sure, you might be able to do this at more than one job. But since you’re in this one now, why not make the most of it?
You’ll make yourself happier. You’ll make other people happier as well.
- The clients you’re better able to serve because you raised more money.
- The donors who feel happier and better rewarded.
- Your colleagues who’ll feel part of a team culture of philanthropy that spurs them forward and makes their work more meaningful.
The best philanthropy facilitators go the extra mile to take care of their constituents’ needs.
Right now, part of your job as a philanthropy facilitator means alerting your donors to special year-end giving opportunities.
It’s the bare minimum to tack “this gift is tax deductible to the extent provided by law” onto the end of your appeal or bottom of your donation landing page. It’s basically perceived as relatively meaningless ‘fine print’ that is mildly reassuring, but certainly not persuasive. Because most readers won’t really understand what it means.
If you want to persuade, you’ve got to offer up more information.
Don’t put this on the back burner. There are only seven weeks left until the end of the calendar year, and NOW is when folks are thinking about their year-end philanthropy.
If you act quickly, you may persuade some of your supporters to give more than they were previously considering giving. And, because you helped them act and feel more generously, they will get a ‘warm glow’ shot of dopamine that will make them feel all warm and fuzzy. And, because of the information you shared, they’ll associate this good feeling with you!
Why is This Year Different from All Other Years?
This year there are special tax benefits – likely for 2020 only — due to provisions included in the 2020 CARES Act. Here are 3 tips for you.
1. $300 Deduction for Non-Itemizers
In all other years… donors could only deduct charitable gifts if they itemized deductions. And since the Tax Reform Act of 2017 significantly reduced the incentive to itemize by roughly doubling the standard deduction and making this option more attractive for more taxpayers, many donors lost the incentive to give partially to save on taxes.
This year any taxpayer, whether they itemize or not, can take an above-the-line $300 charitable deduction. It must be cash (not stocks or gifts from donor advised funds). And it is per tax-filing unit, not individual. This does not mean donors can’t also take additional below-the-line deductions, including the standard deduction if this is their choice. This is a one-time bonus opportunity — $300 donors won’t have to pay taxes on — so why not let your donors know?
Grab more specifics here, including ways to let your smaller donors know how their gift this year will cost them less – so maybe they might wish to consider giving a bit more than usual.
2. Up to 100% of Adjusted Gross (AGI) Income is Deductible
In all other years… donors who made significant gifts could only deduct up to 60% of AGI. This year there’s no cap and donors can deduct up to 100% of AGI for 2020. Again, the gifts must be cash.
This is an opportunity for major gift and capital campaign donors to get a larger deduction by making their full payment this year rather than spreading their gift out over several years. Any excess contributions available can be carried forward for the next five years, subject to the 60% AGI limit previously in place. Why not do your donors a solid by letting them know?
See here for strategies larger donors might consider to generate cash and decrease taxes.
3. Required Minimum Distributions (RMDs) from IRAs are Suspended
In all other years… IRA owners age 70 ½ or older could gift no more than $100,000 annually from an IRA to charity, tax-free. Couples could each transfer this amount, for a total of $200,000. The gift, known as a ‘Charitable IRA Rollover’ had to be transferred directly from the IRA to the charity. The money could not first be paid to the donor. One of the reasons this is attractive to donors is that in all other years everyone is required to take a required minimum distribution (RMD), or pay up to a 50% excise tax on this amount. [The age for RMDs was recently raised to 72, but the option to make a rollover gift still extends to those age 70 1/2]. Not everyone needs this income to live on, and it has the effect of increasing a donor’s AGI and, therefore, their tax bill. It also potentially subjects them to increases in Social Security premiums for Medicare Part B and Part D, plus exempts them for other credits and could impose a surtax on net investment income.
This year, donors can still make an IRA Rollover gift of up to $100,000 even though there’s no RMD. It’s a wise move to continue promoting these gifts as they offer a way for donors who don’t itemize to add to the standard deduction by giving away pre-tax assets completely tax-free. And it’s a way for folks to reduce the balance in their IRAs, thereby lowering the amount of future RMDs.
For donors interested in reducing the size of their IRA, it’s important to remind them they can cash out some of their IRA; then make an offsetting charitable gift and deduct up to 100% of AGI. While this is not a direct “rollover” transfer, some donors may opt to take a larger distribution from their IRA than usual; then turn around and donate the cash to charity to take advantage of this year’s larger deduction opportunity.
Gifting IRA assets now can provide a future estate tax savings for donors with taxable estates (over $ 11.58 million per individual in 2020). Since income earned in IRAs is pre-tax, any amount left after a donor’s death is subject to a double tax – income (known as “income in respect of a decedent”) and estate. For this reason, it’s a terrific asset to give to charity, leaving heirs with non-IRA assets that will not be burdened with income taxes. And this year only, no matter how much donors give, as long as it does not exceed 100% of AGI they can deduct it all if they itemize.
Astute Giving Advice Last Year, This Year and Foreseeable Future
Here are 3 more tips for you, in the interest of helping your donors make the most of their philanthropic giving.
4. Suggest a Gift from IRA in lieu of Will
For donors considering leaving your charity a bequest, suggest they consider naming you as a beneficiary of their IRA rather than providing for you in their will. As noted above, as a charity you’ll pay no income tax. And no estate tax. Other heirs, however, would be subject to both these taxes. When donors leave heirs an inheritance through non-IRA assets, only the estate tax comes into play. So net/net, the donor gets to give away more money by giving astutely.
Many donors simply don’t know they can do this. They think naming their heirs as beneficiaries of their IRA makes sense, and they’ll leave any charitable bequests in their will. It should be exactly the reverse! Not only do heirs pay double taxes, but starting this year heirs (except spouses) must take out all funds and pay taxes within 10 years of inheriting.
Suggesting this legacy giving strategy to donors has an added bonus! It’s much easier for donors to change their IRA beneficiary designation than it is for them to change their will. The former is a simple form they can request from the financial institution holding their IRA. The latter requires a trip to an attorney, which is inconvenient and costs money. Don’t you want to increase your chances of securing a legacy gift by making it easy for donors?
5. Suggest a Gift Swap of Appreciated Portfolio Assets and Replacement with New Shares
Donors who have appreciated assets reap a greater benefit from donating them than from donating cash. Yet relatively few donors consider this giving option, and relatively few nonprofits actively encourage donors to give astutely in this manner. Wouldn’t you like to stand out by being the “good guy?”
Here’s the win/win/win deal:
A donation of Long-term appreciated assets (owned more than a year) avoids capital gains taxes on the appreciation.
A donation of appreciated assets gets the same income tax deduction as a cash gift.
A donor who doesn’t want to part with the stock can immediately purchase new shares in the same company with the cash they would have otherwise donated. Now their stock has a new cost basis, and any future appreciation gain will be minimized.
6. Suggest Bunching Gifts to Exceed the Standard Deduction
The Tax Reform Act of 2017 created higher standard deductions, making them a more attractive alternative than itemizing for many people. This meant the charitable deduction was no longer a giving incentive. Some folks figured out a “bunching” strategy where they doubled up on gifts one year, taking the charitable deduction; then they made no gifts the following year and took the standard deduction. This became a favored strategy for giving to donor advised funds.
Some of your donors may have reserves of bunched giving sitting in their DAFs. And they may have forgotten it’s there, waiting to be distributed to charitable beneficiaries.
Smart charities will ask donors if they have a DAF, and whether they might consider making a distribution to your charity from this potentially forgotten money ‘burning a hole in their pocket.’
How Do You Share Tax Information?
There are a number of ways to alert prospective donors to ways they may be able to make larger gifts by saving on income and capital gains taxes.
Include information about tax-beneficial giving in written materials.
Make sure this information is on the giving pages of your website. This may include landing pages as well as donation forms. Also include links to this information in e-appeals. And ask folks if they’d like information about tax-beneficial giving strategies in your written appeal remit pieces. Finally, consider an article about tax-beneficial giving in one or more of your newsletters between now and the end of the year.
Here are a few examples:
- Jewish Federation of Cleveland
- Jewish Federation of Greater Kansas City
- Catholic Charities of Des Moines
- Catholic Charities Galveston-Houston
- Community Foundation of Western Nevada
- Kansas City Symphony
- St. Jude Children’s Research Hospital
Suggest tax-beneficial giving alternatives when speaking with major donor prospects.
Once the gift is closed, why not ask the donor how they’d like to make the gift? Cash? Appreciated securities? IRA rollover? DAF? Let them know your understanding of the benefits of these various disbursement strategies; then suggest they consult with their own advisors.
Always include a disclaimer.
Remind folks in your communications your nonprofit does not offer professional legal or financial advice and it is always recommended they consult with their personal advisors. Make it clear you are offering suggestions for informational purposes only, and they may wish to discuss this with their own professionals to determine if they are applicable to their own situation. And to assure they are receiving the most accurate, up-to-date information. Also give a name and contact information for someone on your staff donors can connect with should they wish to discuss the matter.
Want More Year-End Giving Strategies?
If you’ve got your year-end fundraising plan completely under control, yay you! If you need to spend a bit of time making a list of ‘to-do’s, now’s a good time. Grab my Year-End Fundraising Solution Kit – To-Do’s and Checklists. It’s a 63-page-long, step-by-step comprehensive road map to effective year-end fundraising. After working 30+ years in the trenches, I can vouch for this stuff. It’s tried and true! Get your “To-Do’s” HERE. Not satisfied? All Clairification products come with a 30-day, no-questions-asked, 100% money-back guarantee. You truly can’t lose!
And if you can’t do everything you wish you could this year, get ahead of the game and put it on your list for next year.
Photo by Claire Axelrad: Temporarily boarded up business street art/graffiti ‘feeling the love.’