Will your Nonprofit Suffer Because of the Increased Standard Deduction?

By Lisa Cirincione, Senior Resource Development Associate at Joining Vision and Action

Conventional wisdom has always been that people don’t give to nonprofits for a tax benefit. But new data suggests it might be time to question that view.

The 2018 federal tax reform nearly doubled the standard deduction for all filers, leading to some concern that Americans would have less incentive to donate to charity, because fewer people will be itemizing their deductions—including those for charitable donations.

Here is what we know about 2018 giving patterns nationally. (1) Overall, donations increased in 2018 by 1.6 percent, which is great, although that growth is down slightly from 2 percent growth in 2017. Breaking down the size of gifts can provide further insight into the impact of the new standard deduction amounts, and nonprofits that have a large number of donors who give $250 or less have reason to be concerned.

Fewer small donations, fewer donors

In 2018, people made more large gifts (of at least $1,000), but the number of mid-level gifts (between $250 and $999) shrank, and the number of gifts of under $250 shrank the most. So the bottom line is that the overall growth in giving last year came from large donors, and the overall number of donors fell 4.5 percent, while the number of new donors was down 7.3 percent.

Another finding that should cause some alarm to nonprofits is that the overall number of retained donors from 2017 to 2018 dropped to less than half of all donors (45.5 percent), which is an almost 2 percent drop from the 2017 rate. That is a significant loss of people donating to nonprofits.

On a positive note, large gifts in the fourth quarter of 2018 attracted a lot of new donors who had never given at that level before. Are those donors making last-minute gifts to try to exceed the standard deduction threshold?

Colorado trends

Here in Colorado, we see patterns suggesting that our donors are following these national trends. In 2018, giving through coloradogives.org was down just over $2 million from 2017. This is also the first time that giving didn’t increase on Colorado Gives Day since it started in 2010—giving on that day was down $725,000 in 2018. (2) Reflecting the national trends, the number of donors also decreased on Colorado Gives Day from 91,004 donors in 2017 to 86,930 donors in 2018. However, Colorado bucked the national trend in overall donors giving through coloradogives.org—with the number rising by 7,105 donors from 2017 to 2018.

A cause for concern

So was 2018 a fluke year in giving? The United Way analyzed IRS data and found that taxpayers who itemize their deductions are twice as likely to give to charity as those who don’t itemize, and this pattern can be traced as far back as 2000. Taxpayers who itemize also give more than twice as much to charity as those who do not, with the average donation among the former roughly $3,500 and the average among the latter nearly $1,330. (3)

Steve Taylor, senior vice president and counsel for public policy at United Way Worldwide, has been vocal about his concerns about the effects the new tax law is having on the charitable sector, saying “We believe the tax law will only accelerate this decline (in the number of donors) and hurt our most vulnerable communities who can least afford it.”

Let donors know they count

While only one year of data is not enough to say definitively that tax incentives have an impact on charitable giving, we need to remain careful stewards of individual donors so they continue to support great nonprofits—regardless of whether they itemize.

JVA challenges all of its clients to double down on your donor retention efforts. Make sure that all of your communications emphasize the importance of those smaller gifts to the accomplishment of the mission. Start by scrutinizing your list of individual donors and determining who to reach out to for a renewed gift this year and who to ask to increase the size of their gift. Also, beef up your efforts to recapture lapsed donors by reminding them of your impact. Finally, call on legislators to help them understand the importance of allowing all taxpayers to deduct their charitable donations, regardless of whether they itemize their taxes.

Still not sure how to increase your individual donations? JVA is here to help with customized consulting services, and our Development Intensive training will be offered November 13–14, 2019.

These numbers are from an analysis that the Association of Fundraising Professionals (AFP) and the Center on Nonprofits and Philanthropy at the Urban Institute conducts of 4,500 organizations in AFP’s Growth in Giving Database. The full study is in AFP’s 2018 Fourth Quarter Report.
Coloradogives.org. (2019). Data and reports. Retrieved from https://www.coloradogives.org/Data&Reports
United Way. (2019). Research brief. Weakening Ties to Charity: A Smaller Percentage of People Giving to Charity with Greater Declines Among Non-Itemizers than Itemizers.

Read more of Lisa’s blogs here.