Takeaways for Nonprofits: TCJA Impact

Just over two months ago, on December 22, President Trump signed the Tax Cuts and Jobs Act (TCJA), and ushered significant changes in the US Tax Code, effective January 1, 2018. Since the signing, the internet has been filled with wailing and gnashing of teeth as experts either bemoan the all but certain devastating effects on US charities or tout the wealth creation effects caused by TCJA.  As with most legislation, the effects will be somewhere in between, not entirely certain, and take longer to really understand.  By now, most know the highlights:

• Increase in the standard deduction to $12,000 for individuals and $24,000 for joint filers
• Elimination of personal exemptions
• Limitation on State and Local Taxes (SALT) of $10,000 (inclusive of income and property taxes)
• Reduction in corporate income tax rate
• Reduction of five of the seven tax brackets (marginal rates)

What do these changes mean for the nonprofit community and our donors?  The answer is not crystal clear; the short answer is ‘it depends’.   Key points to keep in mind (all examples are for discussion, NOT as professional advice):

• STANDARD DEDUCTION. The standard deduction has increased to $12,000 for individuals and $24,000 for joint filers, so many taxpayers who itemized in 2017 may or may not itemize in 2018 and beyond.  Some taxpayers will realize an increase in disposable income, a portion of which could then, in theory, be given to their favorite charity/charities.  The impact of this increase is partially offset by the elimination of the personal exemptions.
• INCREASE IN THE AGI DEDUCTION. The charitable deduction has increased from 50% of Adjusted Gross Income (AGI) to 60% of AGI. Donors can now claim larger deductions for their gifts of cash in the year the gift is made.
• LIMITATION ON STATE AND LOCAL TAXES (SALT). Beginning in 2018, taxpayers will be given the option to deduct their combined state and local property and income taxes, but only up to a cap of $10,000. (Take note, the $10,000 limit applies on the combined total of property and income taxes, not $10,000 each!)  The reduction in the SALT deductibility may benefit charitably-minded taxpayers in high tax states, such as California, New Jersey, and New York.  Assuming a taxpayer has reached the $10,000 limit through state income and property taxes, gifts of appreciated stock or property may be more valuable than an outright sale.  The reason:  many states have a state capital gains tax on sale of appreciated securities and real estate. For example, if in 2017 a California donor sold stock outright, s/he would pay both federal and state capital gains tax and be able to deduct the state capital gains tax, effectively increasing his/her net profit.  In 2018, that same California donor must factor in the $10,000 SALT limitation and likely sees a reduction in his/her net profit.  When that donor gives the appreciated stock to charity, capital gains taxes are eliminated.
• ELIMINATION OF THE PEASE LIMITATION. In 2017, high income donors ($261,500 for individuals and $313,800 for joint filers) saw the value of their charitable deductions reduced by as much as 80% due to the Pease Rule.  This rule lowered deductions by 3% of the income exceeding the above thresholds.  Essentially, the Pease Rule was a surtax.  The Tax Cut and Jobs Act repeals the Pease Rule.  Combined with the higher AGI deduction percentage, high income taxpayers receive greater financial benefits for giving.
• DONOR ADVISED FUNDS (DAF). TCJA leaves donor advised funds untouched.  Donors on the bubble of hitting the new standard deduction may employ a strategy known as ‘lumping’.  Donors select a target year to exceed the standard deduction, so it makes sense to itemize.  They make a much larger gift in that year with the plan to distribute gifts over several years from their DAF.  These giving vehicles have become immensely popular in America.   Five of the top 10 largest charities in the US are donor advised funds (Source:  2017 Philanthropy 400 report).

Confused yet?  You are not alone.  No one knows with certainty how the Tax Cuts and Jobs Act will play out in the near term.  What can you as a nonprofit executive do?

• Know the sky is NOT falling. Donors give to charities for many reasons.  Tax benefits have historically been near the bottom of reasons on that list.
• Focus on relationships. Talk with your donors and stakeholders about how you are meeting your mission and how their gifts are making transformations happen.
• Build value for your agency. Know your outcomes from the good work that you do and tell your story.
• Commit to donor retention. People give to causes for which they have passion, regardless of tax implications.  Talk with your donors – embed a quick 30-second update in your communications…show your face and the faces of those whom you serve.  Keep your current donors engaged!  Median donor retention hovers around 45% (Source: Fundraising Effectiveness Project) – make 2018 the year you dedicate your efforts to keeping more special friends who give to your agency!
• Create differentiation among the sea of nonprofits. What makes you uniquely qualified to solve problems are what donors want to hear – not about the increase in AGI deductibility, removal of the Pease Rule, etc.

Donor questions about the impact of TCJA present another wonderful opportunity to tell your story, share your successes, and to involve your donors in your great work.  Let’s talk!

NOTHING IN THIS ARTICLE IS INTENDED, NOR SHOULD BE CONSTRUED, AS PROFESSIONAL ADVICE.

All the best in your development work,

John Gilchrist, FAHP, CFRE

A brief conversation with Dennis McCuistion

Dallas/Fort Worth residents have enjoyed the pleasure of watching an institution on public television, Dennis McCuistion, tackle thorny issues in our society for over 25 years.  Unreservedly independent, Dennis interviews leaders in politics, business and delivers the answers for his audience.

Dennis is the Executive Director of the Institute for Excellence in Corporate Governance at the University of Texas at Dallas’ Naveen Jindal School of Management.  I recently had the opportunity to visit with Dennis about nonprofit governance at a Rotary meeting.

Dennis spoke about two issues he sees with the many nonprofit organizations he advises. Board members of most nonprofits go on the board because they are passionate about the cause or because they are asked to make a gift and they do.  But many are inexperienced in fiduciary duties, finances such as CEO compensation issues, and strategy.  Boards must continually ask the question what are we supposed to do in the future and lead the strategy development to answer this pivotal question?

The second issue is donor base fatigue because of the stock market swings and in particular, the oil and gas prices.  Many of the oil and gas people, big donors in the past few years and one in particular Dennis is involved with said, “Instead of giving you this, we’re going to give you 20% right now.”

Dennis raises an excellent point about major giving – the source of many major gifts are assets the donor believes can be replenished fairly quickly or the income from those assets.  Nonprofits must continue to promote their case, their stories of success, and their outcomes to demonstrate their exceptional value in order to continue receiving gifts of significance.  Boards which implement best practices in nonprofit board governance are most likely to achieve success in realizing transformational gifts and advancing their respective missions.

Thank you, Dennis, for sharing your insight.

 

All the best,

 

 

John Gilchrist, FAHP, CFRE

Not another Giving Tuesday post! A little neuroscience for today…

Not another Giving Tuesday post! A little neuroscience for today…

With the hundreds of Giving Tuesday blogs, why add one more?  At this point, either you have prepared your agency’s communication and solicitation packages or not – and that is okay, provided your year-end appeals are moving forward.

A recent Harvard Business Journal (HBJ) article asks the question:  how do the brains of generous people function differently, if at all?   The term neuroeconomics refers to the algorithms by which the brain makes choices.  Researchers used MRI scans to learn the brain computes two separate values in giving decisions:  the self-benefit and the benefit to another.

The game of experimental economics, “the Dictator Game” examines self-interest through one person (the dictator) deciding how to split an endowment, if at all, with a second person.   Some suggest this game tests the value of concern for the well-being of others.  Without delving into the moral or psychological implications, MRI scans revealed two different sections of the brain lit up when thinking about self and about others.  A third section of the brain lit up for both quantities – researchers theorize this area puts all factors together and the conscious decision is then made.  Though the researchers could not definitively state whether the charitable disposition emanates from education and environment or genetics (or a compelling case for giving).  Research subjects chose self-interest the vast majority of the time during the game, but one-fifth (21%) behaved in a generous fashion.

Suffice to say the love of mankind – philanthropy – may have always been in our nature because humans have functioned in groups for thousands of years.  Or does philanthropy fundamentally buck our ‘survival of the fittest’ instincts?

Unfortunately, this experiment does not provide crystal clear answers about the neuroscience behind philanthropy.  Those in the development profession must focus on the ‘art’ of philanthropy in determining who to approach for a gift and why someone makes a charitable gift.  One lesson from the research:  make giving simpler by focusing on how another might feel.

I welcome your comments and questions.

All the best,

John Gilchrist, FAHP, CFRE

 

Giving Tuesday – Just the Beginnning

One week from today is Giving Tuesday, a concept created by Henry Timms, Executive Director of the 92^nd Street Y, to remind Americans of the real meaning of Thanksgiving:  showing thanks for our blessings by helping others in need through giving to charities.   The nonprofit sector has made progress in popularizing Giving Tuesday, and much work needs to be done in the future.

On November 23, the John Templeton Foundation released the results of a study, conducted by Edelman Berland, on the consumer mentality takeover of the Thanksgiving holiday.  93% of Americans are familiar with Black Friday – the biggest shopping day of the year in terms of activity (Cyber Monday, first coined in 2005 by Shop.org, may have overtaken Black Friday in dollars spent – but that is another conversation).  Yet only 18% of Americans are familiar with Giving Tuesday.

The study revealed fascinating results on the relationship between giving and happiness.  People who classify as generous (donating time or money) are happier and more satisfied with their lives than people who are not generous – 49% vs. 33%.  Good news for charities:  the Templeton study also revealed those who daily expressed their gratitude give more than those who do not – $468 vs. $319.

So what is the point of sharing findings from a study?   Most charities have implemented their Giving Tuesday communication programs.  Focus the same amount of energy into thanking, thanking, and thanking those new donors who consciously choose your organization with a gift.  Donor retention is a huge problem in our sector, as noted in previous posts.  And most of the reasons why donors leave is within the control of charities.

Consider a Retention Wednesday.   Make that prompt, PERSONAL phone call to the donor – this is a proven way to involve board members who may be reticent about solicitation.  Tell the donor how that gift will benefit the mission (are your talking points ready?).  Invite that donor to get involved in a facet of your organization – show a real appreciation and interest in his/her story!

Giving Tuesday is an excellent way to motivate a prospect to take the final step and become a donor.  Retention Wednesday can prove most beneficial in turning that donor into an investor in your charity’s future.  #GivingTuesday  #RetentionWednesday

All the best,

 

John Gilchrist, FAHP, CFRE

 

Philanthropy Mastermind kickoff – November 5

Philanthropy Mastermind is a group of nonprofit executives and senior development professionals searching for:

• Mutual support
• Immediate help for an immediate situation
• Professional growth
• How to conquer the tyranny of the urgent (end the ‘whack-a-mole’ routine of crisis management)
• Efficiency in fulfilling their agency’s mission
• Greater fundraising effectiveness

Nonprofit executives face myriad challenges every day. How often does your calendar show meeting after meeting, dealing with an upset employee or donor, soothing a sponsor’s perceived slight in an event publication, or calming board members who does not understand why their favorite program’s budget has been reduced?  How can the nonprofit executive break the crisis cycle?

Corporate executives have long used mastermind groups to hone decision-making skills, develop prioritization expertise, learn from fellow members, use the group’s wisdom to solve immediate needs and reduce research time.

Now it’s your turn to reap the benefits of a mastermind group designed specifically for the nonprofit community:  Philanthropy Mastermind.  The program is facilitated by two successful and experienced nonprofit executives, John Gilchrist, FAHP, CFRE and Karen K. Martin, MBA, CFRE. Both John and Karen have walked in your shoes and dealt with the highs and lows that come with nonprofit leadership.

Participants can expect to boost productivity, reduce feelings of isolation and help you raise more money for your mission.

Please join us for an informational session (no sales tricks!) on Thurs., November 5th 5 PM, at the Blue Mesa Grill on Northwest Highway across from Northpark Mall. Call 469-215-1651 for more information.

A Division of Philanthropy Focus LLC

All the best,

John Gilchrist, FAHP, CFRE

Thoughts on fixing the leaky nonprofit bucket

In last week’s post, I discussed the net loss of donors – according to a Chronicle of Philanthropy report covering 2014 data, for every 100 new donors, nonprofits lost 103 donors.  Granted, not all nonprofits feel this loss.  Indeed, many are thriving in donor retention.  What sets them apart?  An organizational focus on stewardship, donor engagement, and deepening the donor relationship and buy-in they feel with the nonprofit and its mission.

Try some of these time-tested proven methods in your stewardship efforts:

• Personal phone calls of thanks by staff and volunteers. Few things make as positive an impact on a donor than a phone call from a staff member or volunteer just to express thanks for a recent gift – especially for a first time donor.   Don’t ‘dilly dally around’, as my grandmother would say when a task needs to be done.  By this, I mean say thank you in the first five to eight seconds.  If the gift was made for a specific program or service, let them know how the gift benefits the recipients of your nonprofit’s service(s).  In the event a volunteer makes the call, provide a quick fact sheet about that program or service, its accomplishments, outcomes, etc.  And always a great touch is having one of the recipients make the call.  S/he can tell a personal story about how their lives have improved because of the nonprofit and you, the donor, helped make it all possible.   Penelope Burk, author of Donor-Centered Fundraising, has conducted extensive research on donor psychology and behavior and this research clearly indicates new donors who receive a thank-you call within two days of their first gift will give 40% more in the next year.   So why would you not make these important calls?!  Your donor may be in a talkative mood, once s/he understands the real purpose of the call.

• Regular (monthly or bi-monthly) update from the CEO/Executive Director. Think the old Kiplinger Washington Letter format – no fancy graphs, charts, pictures, etc.  Just like Sgt. Joe Friday from Dragnet, you provide ‘just the facts’.  Give the donor an insider’s perspective on what is happening in your nonprofit, trends in the industry, new research, new staff members, and new outcome data – and personal stories of success – showing (hopefully) the efficacy of your programs and services.  One proviso – this is not a solicitation.  You, as the CEO/Executive Director, are sharing your organization’s progress in fulfilling the mission via its programs.  There is a time for solicitation, but not here.

• Donor surveys. Ask donors their wishes on communication (print, e-mail), frequency of those communications, what they want to know about your programs, other charities they support, etc.  If you would like to see an example of one, let me know and I will send it to you.

To reverse this net loss of donors, we really have to put ourselves in our donors’ shoes.  We can and must do a better job in donor retention.  Stewardship is not just an ‘activity’, it is central to donor engagement.  How can we expect to continue solving the many societal issues nonprofits tackle every day if caring for our donors is not one of our core competencies?

All the best,

Fixing the nonprofit bucket (it leaks worse than a sieve)

The Chronicle of Philanthropy  reported in its October 2 online feed that in 2014, charities lost 103 donors for every 100 gained – a disturbing net loss!  Even more disturbing, this trend has held true since 2012.  The Center on Nonprofits and Philanthropy at the Urban Institute conducted this study as part of the Fundraising Effectiveness Project, in collaboration with the Association of Fundraising Professionals.

Another finding from the study is the median retention rate – those donors who make repeat gifts – stands at 43%.  What is our sector missing that others do not?  We could discuss the reasons all day, but perhaps it boils down to we are not as focused on stewarding our present donors as we are chasing down new donors.  With today’s robust donor management systems, acknowledgement letters automatically can be printed as soon as the gifts are entered.  But are you, a board member, other volunteer, service staff, or service recipient personally thanking the donor – and how soon after the gift is received?   That initial contact has to be more than a perfunctory thanks.  Donors want and deserve answers to questions like:

• How will the gift advance your mission?
• What outcome(s) can be achieved through your generosity?
• What research could my gift support?
• What solutions does my gift buy?

Penelope Burk’s studies provide crucial insights into the importance of showing gratitude as an organization.  According to Cygnus Applied Research (Burk’s company), 95% of donors would appreciate a thank-you call one to two days after a gift.  That is not surprising, just human nature to want a special gesture to be acknowledged and appreciated.   Empirical evidence demonstrates that the simple and timely thank you call leads 85% of donors to give again and 84% of these donors would likely increase their gift.   Perhaps this one finding would spur everyone in the development office to rethink their procedure on donor acknowledgement and thanks!  Burk’s research shows the importance of board involvement in thanking donors:  40% larger gifts from these donors and 39% more renewed their gifts.

Many organizations receive far too many gifts to provide this level of stewardship.  They must rely on letters, which have been written at the same time as the appeal, have some degree of personalization, and weave a story about how the gift will support these outcomes, etc.

With overall charitable giving at 2% of GDP – and has hovered around the 2% mark since the mid-1970’s, the net loss of donors means they are scaling back the number of supported organizations, frequently dropping small charities (raising less than $100,000 – Cygnus Applied Research).

Fundraising 101, yes (but it bears repeating):  Your best donor prospects are those already giving to you! Stewardship has to mean more than an annual dinner, CEO letter, newsletter, etc.   PLEASE SHARE your successes in stewarding and deepening donor relationships.  Let’s learn from each other and grow our sector beyond the 2% ceiling!

OMG! Sweet sixteen!

As my youngest child has her sweet sixteenth birthday today, I remain in disbelief that she has grown up so fast.  Yet I still look pretty good (it’s OK – you can chuckle!), albeit with much less hair than when I first held her and told her I loved her!

I will not bore you with the details of her childhood.  But as I write this, I am truly amazed at what philanthropic milestones have occurred over the same 16 years.   Just looking at a few events in healthcare made possible through philanthropy:

• Immunizing the third world – the Gates Foundation invested $2.5 billion to immunize some 750 million children – more than twice the population of the United States – against diseases which the developed world largely has not seen in decades.
• Allen Institute for Brain Science – Paul Allen has given some $500 million to endow this center which studies how the brain processes information; basic brain structure; and what goes wrong in the brain to develop neurological disease and disorders.
• Nothing but Nets – little did Rick Reilly know when he authored that now-famous column in Sports Illustrated almost 10 years ago that he would ignite a worldwide push to eradicate malaria in the world. People all across the globe provided over 400 million mosquito nets to allow people to sleep without fear of mosquito bites, annual malaria deaths plummeted over 350,000.

Many more successes have happened and those stories need to be told about the transforming power of philanthropy in areas such as arts, education, animal welfare and so on.  Sixteen years have flown by so quickly in my household and I have seen my daughter grow into a beautiful, smart, and talented young woman.  Throughout those same sixteen years the world has witnessed many remarkable triumphs, as well as tragedies.  So what do you dream might happen in the next sixteen years?

Don’t Forget to Have a Stewardship Day

Get hyped for Thursday! North Texas Giving Day finally arrives after much preparation by over 2,100 North Texas charities and the Communities Foundation of Texas. September 17 marks the seventh year of the massive effort to raise awareness and funds for charities critical to the fabric of the North Texas area. $86 million in giving in the six prior years is most impressive by any measure.

Giving Day represents a marvelous opportunity to pull in new donors. And a meaningful way to engage your board members in thanking and welcoming and appreciating donors. How is your non-profit thanking the thousands of donors who take time out of their schedule to make their gift? Make that first thank you call fast!  Penelope Burk with Cygnus Research states over 90% of surveyed donors would be thrilled to receive a thank you call from a board member of the nonprofit. Ms. Burk’s research also shows a clear link between an expedient thank you and increased giving.

What if our sector put as much effort into a stewardship day as it does into giving day? Admittedly, stewardship does not have the same allure as securing bonus dollars yet this type of engagement provides staff, board members, and other stakeholders with the good fortune to build a relationship with the people who fuel the nonprofit enterprise: donors.

What are your thoughts on a special stewardship day sponsored by nonprofits? Your thoughts and comments are welcomed and appreciated.

Remembering September 11

I had just dropped off my oldest daughter at school.  I was listening to the “Mike & Mike” show on ESPN radio when Mike Greenberg announced a plane had crashed into one of the towers.  It was initially thought to be a tragic accident. About one minute later, he said this was no accident…

When I got to work, everybody was around the many television sets in the hospital.  The video sent a cold chill throughout everyone watching.  Questions came from all directions. How could anyone do this?  Who did this?  Would there be another attack?  If so, where was the target?  My co-workers were not panicking by any means, but an atmosphere of deep somber permeated all corners of our hospital. The clinical teams focused on patient care and those in the C-suite pulled out our disaster manuals and began to refresh our understanding of what to do, who would do what, etc.  Our CEO was in New York, so our first thoughts were of her safety.  She was able to call to let us know she was safe, but stuck at the airport as all flights had been grounded.  No one knew when she could travel back.

I was President of the Longview United Way and the annual campaign kickoff luncheon was scheduled for that day at the convention center.  A crowd of 700+ was expected for the event.  One of the campaign co-chairs wanted to cancel the event as rumors flew that President Bush was on Air Force One heading to Barksdale AFB in Shreveport about 60 miles away.  She was worried, rightfully so, that he was a target and our area could be subject to an attack.  The only answer I had for her and for the campaign leadership team was if the President was headed to Barksdale (he was), that half of the US Air Force must be around that plane.  I would not cancel the luncheon event – our campaign was too important to the thousands in the community who needed the United Way.  I guess the hubris in me refused to let terrorists win, maybe it was a feeling that we had to go on with our lives.

As part of the response that grounded commercial air traffic, the Amtrak train was stopped at the Longview station with over 100 passengers.  These folks needed a meal.  The United Way Executive Director asked me if they could join our luncheon.  Of course, they were invited.  I do not recall much of what I, or any of the other speakers, said on that day.  But I remember a sense of determination of the attendees as they left the center.  Determination that we would face the challenges brought onto our nation, while our nation’s nose was broken and bloodied, we were not defeated – not by a long shot.

Please take a moment to remember the victims in the World Trade Center, the Pentagon, and flight 93.  And especially remember those first responders who went into the towers, denying the base human instinct to run from disaster, and saved people.  Many of these first responders lost their lives in the collapse of the towers.

Far more eloquent people can express the emotions of September 11.  I just wanted to share how a group of people 1600 miles away did their part to reach out and share what we had with a group of strangers who happened upon our city. Remember we are Americans first and it is in our nature to give of ourselves to help others.