COVID-19 Stimulus Bill Includes Charitable Giving Incentives: What This Means for Donors
Wednesday, April 8, 2020
Over the past few weeks, we've held our breath as Congress worked to pass a $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act or "stimulus package") on Friday, March 20, 2020. While the enduring impact of COVID-19 and the reach of this package is not yet known, nonprofits across the sector are looking to this bill to find answers in its many provisions, from forgivable emergency loan programs to direct cash infusions.
Meanwhile, nonprofits have focused on communicating to their supporters at all levels as they've had to make very difficult decisions and invited philanthropists to join them in finding solutions. Please check out the message by The Alford Group's President and CEO Brenda Asare that outlines ways some organizations have leaned in and facilitated deep and meaningful conversations around the community.
Now, let's take a focused look at the varying charitable giving incentives for individual and what this means for donors.
Breaking Down New Charitable Giving Incentives
Outlined within the 900-page CARES Act under section 2204, donors can now use a universal tax deduction of up to $300 on their 2020 tax return if they take the standard deduction. This provision reinstates the opportunity for gifts of all sizes to qualify as tax deductible. While this above-the-line deduction doesn't apply to donors who itemize their deductions, an additional tax incentive that increases the cap on charitable contributions from 60% of your AGI to 100% will benefit itemizers, too! What this all means is that your donors will have an increased benefit from their generosity this year.
Although it's important to understand the current tax year's benefits in discussions with your donors, be sure to direct donors who seek tax advice to the professionals. Below are a few examples of broad ways nonprofits can share information about this new tax benefit:
- Consider featuring this information as a sidebar on your next donor e-newsletter to inform appropriate donor segments of this recent tax law change under the CARES Act. This can be especially relevant for donors in your database who are flagged to receive an annual statement or have an interest in planned giving. Tip: Remember to code your donors throughout the year and offer opportunities for donors to inform you on your donation forms!
- You can also consider updating the standard statement in annual statements and tax receipts with the bolded language: "No goods or services were provided in exchange for this contribution. Please consult your tax advisor regarding new 2020 tax deduction opportunities. [Name of nonprofit] is an exempt organization as described in Section 501(c)(3) of the IRS Code, EIN #XXX."
Reviewing Donor Motivations: How Much Do Tax Benefits Really Matter?
We all remember the 2018 tax law change that restricted itemized deductions and recall the volatility of the stock market that triggered fears across the sector about a reduction in charitable giving. Recent data shows us that there was in fact a significant drop of households itemizing their deductions after the tax law change: from 46 million in 2016 to only 18 million in 2018. Although there is a trend in the decreasing number of individual households giving in the U.S., I encourage you to evaluate historical giving data to understand the sensitivities your donors have to both economic and tax-related events as you further engage them through these challenging times.
Now, if you're thinking this tax incentive may be an opportunity to further engage donors and curb the decline in your contributed revenue, keep in mind that tax benefits are low motivating factors for donors at all levels. The following top motivations are consistently identified across the sector for major donors.
Do the following motivations sound familiar?
- I believe in the mission (54%)
- I believe my gift can make a difference (44%)
- I am personally fulfilled when I give (39%)
- I give to the same organizations each year (36%)
- I want to give back to the community (27%)
- I want a tax benefit (17%)
Overall, individual households engaged in traditional charitable giving have been on the decline for a number of reasons including economic instability, restructured tax incentives, new online and social media giving trends, and much more. What we understand is that donors still give despite global pandemics and recessions, and the conversations you've had should confirm this.
Giving Trends During Crisis and How Data Can Guide Us Now
The Great Recession in 2008 saw a 40% drop in the equity market that corresponded with a 6% decrease in individual household giving. Comparably, individual giving fell about 3% in 2018 as you see in the Giving USA image below. We won't know what the larger philanthropic picture is for a while, but we must all keep in mind that most donors will continue to listen and engage with you as you keep them informed of the work ahead.
Although the current pandemic is different from anything we've experienced before in our lifetimes, you won't be surprised that people rise to the occasion and help during major disasters. A quarter of high net worth individuals gave to disaster relief efforts in 2017 and nearly all reported that it did not affect their giving to other causes over the course of the year.
Additionally, giving levels before and after the Great Recession did not have a material difference when evaluating it as a percentage of income. Of course, everyone felt the hit, but statistics show that it was relative to the overall decline in the economy and not fully a reflection of donor generosity. It's important to remember that major donors have also historically given steadily as a percentage of their wealth, which has offset a more significant decline in overall giving during times of crisis.
As you've seen and experienced in your own communities, donors are rallying around some of the hardest hit organizations and they are making a major impact. Community foundations such as The Seattle Foundation who distributed over $10 million in emergency funding, The Chicago Community Trust who raised $13.5 million in one week for their COVID-19 Response Fund, and a group of Seattle philanthropists who have collectively raised over $30 million through the "All in Seattle" initiative, are just a few ways cities are pooling together substantial funding for nonprofits.
Measuring the Outcomes You Want for Tomorrow
Be sure to measure and track your giving trends that will enable you to quickly pivot and adjust your strategies as needed. Many are anticipating lasting impacts of this economic crisis, therefore understanding what happened in the past will no doubt be an asset as you forge forward.
How are you using data to help you understand the following questions?
- How will my new, small and mid-level donors continue to give in meaningful and regular ways following an appropriate level of communication?
- What are my major donors responding to and how will this impact our efforts next year?
- Now that we've raised funds for emergency funding, how will I now steward these donors and position our next ask for support?
- We've asked funders to remove restrictions from their gifts in support of immediate needs, how will this impact their motivations and giving in the future?
- What's the value of new and emerging opportunities that have surfaced during this time and how much of this can I rely on moving forward?
- What have we learned from all the conversations we've had from our donors at various levels?
As we all move through this uncertain time in the midst of COVID-19, relying on one another for best practices and lessons learned will help us navigate through this together.