Disclaimer: As the author notes below, please check with your legal team and accountant to confirm how to inform donors of giving opportunities and anything concerning your nonprofit’s financials. This post is meant as guidance but is not meant to replace or override your team’s professional advice.
Part of the job of being a true philanthropy facilitator is showing donors how they might benefit from being a little more generous. “Philanthropy” – aka “love of humanity” – works best when everyone wins – your organization, the donor and the community. Towards this end, why not be prepared to inform donors of giving opportunities of which they may not be aware?
Today I want to look at two ways to promote philanthropy that are too-little used by the lion’s share of charities:
- Current tax incentives.
- IRA distributions.
When you remind donors of these opportunities, especially at year-end, they’ll often end up giving more than they would otherwise have considered. This results in more money for your mission, more satisfied donors, and more solutions to the world’s most pressing problems!
Win. Win. Win.
Let’s review these two giving opportunities of which your donors may not be aware.
1. Current Tax Incentives
In 2020 the Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced some new temporary tax benefits. The good news is the COVID Relief Act passed in December 2020 extended these benefits – and even increased one – through 2021. And the Charitable Giving Coalition is lobbying to make these benefits permanent. What are they?
- The $300 universal charitable deduction for non-itemizers is extended through 2021.
- For 2021 the same $300 “above-the-line” deduction is doubled to $600 for joint filers.
- The temporary AGI limit increase from 60% to 100% on itemized charitable deductions for cash gifts is extended for 2021.
In all other years, donors who made significant gifts could only deduct up to 60% of AGI. This year there’s no cap and donors can deduct up to 100% of AGI for 2020. The gifts must be cash, not stocks or property.
This is an opportunity for major gift and capital campaign donors to get a larger deduction by making their full payment this year rather than spreading their gift out over several years. Any excess contributions available can be carried forward for the next five years, subject to the 60% AGI limit previously in place. Why not do your donors a solid by letting them know?
What donors don’t know, they won’t take advantage of – and that will be to everyone’s detriment. While I always recommend you let donors know you are not in the business of offering professional legal or financial advice, and they should consult with their own advisors, this doesn’t mean you can’t inform people about changes in the law. For example, last year I was delighted to receive an email from the Fine Arts Museums of San Francisco including information informing supporters about new tax deduction benefits made possible through the CARES Act.
It’s the bare minimum to tack “this gift is tax deductible to the extent provided by law” onto the end of your appeal or bottom of your donation landing page. Donors perceive this as relatively meaningless ‘fine print.’ Mildly reassuring, but certainly not persuasive. Most readers won’t really understand what it means. You can do better.
Remember this: Fundraising is a value-for-value exchange. The donor gives you something of value, usually money and/or time. You return something of value, usually an intangible “feel good.” While it’s true the main motivations for giving have to do with meeting a donor’s needs for connection, community, self-esteem, fulfillment of a moral or religious obligation, or just feeling pure joy, sometimes the donor will be further incentivized by gaining a tax deduction.
In coming at fundraising from a place of abundance, not scarcity, it’s not your job (or most productive strategy) to make judgments about what should/should not motivate people to give. Rather, your job is to encourage would-be donors and help them give as much as they can comfortably contribute. Whatever your own feelings about what tax deductions should exist, put those on the shelf. For that matter, put your personal feelings about what other benefits the donor should receive from contributing on the shelf as well.
The charitable deduction encourages Americans to give more to charity than they otherwise would. In some respect, it normalizes the attitude people with income have a responsibility towards those in need. Use it wisely in your promotional materials and conversations with donors to encourage more thoughtful and passionate philanthropy.
2. IRA Distributions
In all other years IRA owners age 70.5 or older could gift no more than $100,000 annually from an IRA to charity, tax-free. Couples could each transfer this amount, for a total of $200,000. The gift, known as a ‘Charitable IRA Rollover’ had to be transferred directly from the IRA to the charity. The money could not first be paid to the donor. One of the reasons this is attractive to donors is that in all years other than 2020 everyone is required to take a required minimum distribution (RMD), or pay up to a 50% excise tax on this amount. [The age for RMDs was recently raised to 72, but the option to make a rollover gift still extends to those age 70.5]. Not everyone needs this income to live on, and receiving the distribution has the effect of increasing a donor’s AGI and, therefore, their tax bill. It also potentially subjects them to increases in Social Security premiums for Medicare Part B and Part D, plus exempts them for other credits and could impose a surtax on net investment income.
For donors particularly interested in reducing the size of their IRA, and future RMDs, it’s important to remind them this year they can cash out some of their IRA; then make an offsetting charitable gift and deduct up to 100% of AGI. While this is not a direct “rollover” transfer, some donors may opt to take a larger distribution from their IRA than usual; then turn around and donate the cash to charity to take advantage of this year’s larger deduction opportunity.
Gifting IRA assets now can also provide a future estate tax savings for donors with taxable estates (over $ 11.7 million per individual in 2021). Since income earned in IRAs is pre-tax, any amount left after a donor’s death is subject to a double tax – income (known as “income in respect of a decedent”) and estate. For this reason, it’s a terrific asset to give to charity, leaving heirs with non-IRA assets that will not be burdened with income taxes. And for 2020 and 2021 only, no matter how much donors give, as long as it does not exceed 100% of AGI they can deduct it all if they itemize.
How to Inform Donors of Giving Opportunities
There are a number of ways you can proceed.
- Talk to your major donors. Let them know they may be able to increase their giving this year by taking advantage of the changes to tax deductibility under the CARES Act.
- Write to your donors. Here is a templated letter from Stelter you can update for 2021 and send to inform donors of new contribution opportunities. Download Donor Letter (DOC).
- Develop a special campaign to encourage $300 donations. Encourage everyone to take advantage of this extended CARES ACT universal deduction opportunity, noting that if their employer matches gifts they could potentially benefit you to the tune of $600 – or more.
- Put this information on your website. One place could be your “other ways to give” donation landing page. For an example of how to share IRA gifting information with donors, see the Phoenix Children’s Foundation website.
It’s good to be aware of the varying deductions a donor can take for charitable contributions. But also be aware these laws are always changing. Fundamentally, you are not your donor’s lawyer or CPA. You are their philanthropic advisor, helping them to enact their values in the manner most advantageous for all concerned. Remember to include a disclaimer your organization does not provide legal or financial advice and you recommend donors consult with their own professional advisors to ascertain how these opportunities may complement their own personal, philanthropic and tax planning objectives.
Download this Culture of Philanthropy Checklist loaded with action tips to determine if your nonprofit has one in place, and how to get started with adopting a culture of philanthropy.