The Implications of the 2017 Tax Reform and Jobs Act on Philanthropy

If you work in philanthropy, you are probably studying the 2017 Tax Reform and Jobs Act closely. The crux of the matter is simple: the legislation changes the monetary equation for most individuals, altering the donor landscape of those who are willing to give and why.

Is your fundraising team ready to deal with this changing landscape? Let’s focus on what is changing and how it works.

The Who: Who Has the Inclination to Give Now?

In our potential donor prospect base, the “who” is changing: those inclined to give. Note: this is different from the ability to give (someone’s liquidity or capacity); this is purely someone who has the willingness to give due to the tax reform.

The Why: Reward to the Highest AGI

The 2017 Tax Reform and Jobs Act rewards those who have the highest adjusted gross income (AGI) i.e. your income minus deductions. AGI derives its base first from gross income, which reflects all the income you received over the course of a year, before you subtract anything from it and before you make other adjustments.

It includes almost all income from a wide variety of sources, such as

  • salary,
  • bonuses,
  • tips,
  • dividends,
  • interest,
  • rental property income,
  • severance pay,
  • alimony payments received,
  • gambling winnings, and so on. 

The Adjusted Gross Income figure is important for calculating your overall tax liability. The AGI will determine your tax bracket and allow you to see what tax credits you qualify for. A lower AGI results in a lower tax bracket (and possibly more tax credits) so the more you have in gross income the more you are looking for ways to decrease that number and giving money away can be a key driver in this equation!

With the change in the 2017 tax code, the percent of one's giving deduction increased from 50% to 60%, allowing those with the highest gross income to benefit the most by giving more. 

That means fundraisers must focus on those in their alumni base that are worth the most. The challenge is everyone who raises 501(c)(3) capital is focused on the same individuals, the ones who line major and principal giving portfolios. How do we ensure that they give it to us? How do we influence their giving behavior so that we get the wallet share? You need to impact a donor’s why.

The Unlikely: Those with Lower AGI

Conversely, those with lower AGI don’t have the incentive to give as much. In 2018, under the new tax reform, all individuals will be doubling their standard deduction from $12,000 for a single individual and now $24,000 for married individuals. They no longer need to decrease their AGI with charitable giving which may make them harder to reach and not very receptive to the giving process. Going forward, annual fund officers will have a harder time not only reaching their middle and lower income alumni, but also will need more behavioral ammunition to get their attention and convince them to participate.

THE At-Risk: Leadership Level Donors

Those who are giving at a leadership level of $1000 to under $10,000 will require the highest touch from the giving officers as they are “on the edge” of the tax benefit spectrum. This will require more touches from your team in the engagement process and more personal connections to get them to participate.

Which teams can engage these donors the best? Those Advancement offices that have staffed their leadership teams separate from their annual teams. Why? The efforts of a leadership team are already distinct and with these tax changes, they will be even more distinct from those of the annual team going forward.

THE Asset: Behavioral Information 

We need to have behavioral information at our fingertips about these high net worth donors and prospects. We need to be able to integrate this information with our internal and traditional giving stats so that we know who these people are, what they look like, what they are interested in, if they are engaged with the institution and what will influence their giving decision.

In 2018 behavioral information is no longer a nice-to-have but a must to have to raise capital.

Adding behavioral information to your current alumni data at the individual and household level will provide you more insight into their inclination to give. When you integrate that analytically with your wealth screenings, the data will navigate you to your next group of donors to call on in your 2018 major giving portfolios. By spending your time wisely, you can efficiently gain wallet share from those you’ve identified at the intersection of this analysis and meet your giving goals!

Where can you find those donors who have the inclination and the capacity to give? Learn how to build a fundraising road map. 

View our workbook: Develop a Road Map for Fundraising