Fundraising has always been about making an artful and gripping appeal, giving prospective supporters a compelling reason for becoming a donor (investor) to your organization. The steps normally taken;
- Identify and qualify a prospect…Then cultivate the prospect
- Convey your passionate “why” – 2 or 3 key stories
- Present essential metrics, showing your agency’s success
- Draw them in and help them attain “ownership” before $1 dollars has been given
- At the right time, close the deal. Money from a donor is a result of believing!
But the bar has just been raised for charities on the new tax law which is effective in 2018!
Following is a partial list of potential impacts on non-profit organization provided by the National Council of Non-profits. For the complete list visit the Councils website: www.coucilofnonprofits.org.
- Income tax withholding. All employers, including nonprofits that withhold federal, state, and local income taxes from employees’ paychecks must adjust withholding rates by February 15, 2018.
- Compensation over $1 million. An excise tax of 21 percent will be levied on nonprofits whose top five employees earn more than $1 million.
- Payment of on-site gym, parking, and commuting expenses. Tax-exempt organizations must now pay a 21 percent unrelated business income tax on these expenses. Pre-qualified tax plans for these purposes are still OK.
- Unrelated business income or losses. The unrelated business income tax rate has been changed to 21 percent tax. Changes in the ways these activities are anticipated. It also appears that losses from one activity cannot be used to offset income from another.
- Net operating losses. Net operating losses are now limited to 80 percent of taxable income, which for exempt organizations means 80 percent of unrelated business income
- Tax-exempt bonds. Advance refunding bonds have been eliminated.
- Specializes in a particular activity. Some colleges and universities must now pay an excise tax on investment earnings. Other types of organizations may also be affected by provisions of the law.
- Tickets for college athletic events in exchange for a donation. Donors are no longer entitled to deduct payments made to a college or college athletic department in exchange for college athletic event tickets or seating rights at a stadium.
Bottom line: many charities will have a more difficult time in securing charitable donations in 2018 because of the new tax law. The Tax Policy Center estimates that bill could reduce charitable giving by $12 billion to $20 billion this year. This is in part because of the higher standard deduction, the $10,000 cap on state and local tax deductions and other changes.
In 2018 fewer than 10% of taxpayers are expected to itemize in the 2018 tax year. Down about 30%. Without itemized deduction, most people will lose all tax benefits linked to charitable giving. So what the new tax law will do is to force charities to have a strong value proposition, a compelling reason donors (partners, stakeholder) should give – or invest – in their mission.
Check out upcoming blogs for more suggestions on navigating the new tax law.