Guest Blog by Conner Wolfe, Principal, Conner Wolfe Consulting
The new tax law, with its increase in the minimum standard deduction, is certainly a reason for nonprofits to worry. What will the impact be? Will fewer people donate? Will people donate less? POLITICO anticipates a 62 percent drop in the number of middle-class households that benefit from the charitable deduction. Some would make it out that the inevitable result of the enactment of the new tax plan is that nonprofits will face a massive reduction in charitable giving leading to the demise of the sector. For now, we can only speculate. I, however, have an unpopular opinion: the new tax law might force a needed change in nonprofit fundraising.
Have you ever started a conversation with a prospective donor by presenting your IRS determination letter as evidence that their donation will be tax deductible? “It’s an important cause and what a great way to get a tax deduction” you might say.
Has anyone ever responded to your annual fund letter because of the footnote reminding them that their donation will be tax deductible? “With your support, we will make our annual fundraising goal and by the way, your donation will be tax deductible.”
This approach to fundraising seems ludicrous and is exactly the wrong way to ask for support. Nevertheless, it is essentially how many nonprofits approach fundraising. Many seem to assume that because their cause is important and because donations are tax deductible, donors will give if asked.
The old tax law gave financial incentives for relationships between nonprofits and donors that were purely transactional and allowed these types of relationships to exist. Donors that itemized didn’t need to know or particularly care about the impact their donation had nor did they need to have a personal relationship with the nonprofit receiving it. Under the new tax law, far fewer people will itemize their tax deductions meaning most donors will no longer have this financial incentive to give. As a result, the way we fundraise in 2018 MUST change.
In the past year, millennials surpassed baby boomers as the nation’s largest living generation. A staggering 84% of millennials give to charity, a rate second only to the Greatest Generation and comprising 11% of total giving.1
Millennials, like it or not, are the next generation of philanthropists, and nonprofits need to capitalize on this emergence to succeed in years to come.
Thankfully, we already know why millennials give and their reasoning has nothing to do with tax deductions. Millennials give because they can clearly see how their gift will make an impact for the better, because their gift helps someone they know (be it someone who sees or delivers the services of the nonprofit), or because they have a personal connection to the cause they are giving to.2
Millennials don’t give because of financial incentives and now, under the new tax law that eliminates these financial incentives for many, nonprofits will hardly have a choice but not to talk about it.
In 2015, Network for Good listed some of the top reasons donors give. Do you know what didn’t make the list?3 Tax deductions. While it is hard to determine a singular motivator as the top factor in charitable giving, I think we can all be sure that tax benefits do not rank highly on any list of reasons people give and for good reason.
Successful giving is and always has been about impact and relationships and in 2018, giving MUST be about impact and relationships. Nonprofits that do not adapt to this forced reality will fail. Now more than ever, we must build personal and sustainable relationships of trust with our donors and our prospective donors of all generations (and especially emerging millennial donors) to demonstrate to them, the incredible impact their donation will have on a cause they are passionate about. Like it or not, this is the future of giving and the future of the nonprofit sector and the new tax law is forcing this change.