Using tax law changes to talk with your donors

by Julianne Buck
Executive Director
Community Foundation of Grundy County

 

As a taxpayer, I’m sure you’ve heard about the changes in the tax law that expands the limits for standard deductions to $12,000 for individuals and $24,000 for married filing jointly. This means that most of us won’t itemize because we don’t have that much in deductions.

But what does this mean for your nonprofit? First, any legal changes such as this is a good reason to approach donors, especially if they are long-time supporters and if your messaging is feeling stale.

Wealth advisors are suggesting that donors “bundle” or “bunch” their deductions. If a donor couple traditionally gives your organization $5,000 a year, they can bundle five years’ worth, donate $25,000, take the itemized deduction…and then not give to your organization for another five years.

Not the most ideal situation, but do-able. What would your organization do with $25,000 meant to last for five years? Would you use it all in year 1? Put 4 years’ worth aside in savings? If your donor asks you how you’d deal with this scenario, what answer would you give? I suggest you talk with your board chair and treasurer – and quickly. This all has to do with year-end (December 31) donations and charitable tax deductions.

If your organization doesn’t have a plan for bundled gifts, please contact your local Community Foundation. There a donor can gift a bundled amount now, take the itemized deduction, and grant it to your organization later…such as one-fifth a year for five years.

If the donor wants to decide when and where to grant from the fund, that would be a Donor Advised Fund. If the donor specifically wants the grant to come to your organization, that’s a Designated Fund and the donor doesn’t have to think beyond the initial gift. The grant would automatically come to you.

If you believe in sustainability, I also suggest making the Designated Fund endowed. True, you’ll only receive 4-5% of the value of the fund annually, but there’s the key word: annually. As in forever. If you understand that your home checking account is for paying bills and that your IRA is for funding your retirement, then you understand the difference between “pass-through” and “endowed.”

What does a Community Foundation do with that bundle of money meant for you? We invest it according to our Investment Policy. Most of us have a general investment pool that is either 60-40 or 50-50, meaning 60% stocks and 40% bonds (or 50-50). Any Community Foundation should be able to provide you with a history of their investment pool. It’s much more sophisticated than a traditional CD that most nonprofits use for growing spare dollars. Also in the spirit of transparency: a Community Foundation will charge an administrative fee (usually 1-2%) for the investment and management of this Fund. If the fund remains under the advice of the donor, the donor pays the fee.

Regardless of which path your organization takes, the important take-away should be: Use this change in the tax law to talk with donors. There’s plenty of material out there to use for crafting your message. Also, don’t be afraid to ask donors their opinion: “We’re not sure how this change in itemized deductions will affect our organization – what are your thoughts?” “How do you think donors will want us to use their bundled gifts?”

Please don’t be scared of the tax law change nor talking with donors. If they are already your supporters, they believe in your mission and want you to succeed. But they also want to be smart about their own money, and “bundling” charitable gifts may be a solution for them.

Julianne Buck is the Executive Director of the Community Foundation of Grundy County in Morris, Illinois. During her 15-year tenure, she has taken the organization’s assets from $0 to $8 million, with another $4 million expected by year-end. You can contact her via cfgrundycounty.com or [email protected]

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