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New Deduction Levels Impact Year-End Charitable Giving

From COVID-19 to an increase in the standard deduction, nonprofits are struggling. Here’s how they can turn it around.

By Cydney Baron | December 3, 2020

Like most everything else, charitable giving looks a little different in 2020.

As a result of the doubling of the standard deduction on tax forms, many households in the country will not itemize their taxes this year, said Evan Walter, Institutional Wealth relationship manager at BOK Financial.

That’s concerning for nonprofits that typically rely on end-of-the-year charitable gifts from donors who wanted to meet the old threshold for itemizing deductions.

Walter, who works with nonprofits, suggests that nonprofit organizations adjust how they ask for donations and how they budget for giving throughout the year.

Instead of expecting large, end-of-the-year gifts, the Oklahoma Center for Nonprofits urges nonprofits to encourage their donors to give on a more regular schedule.

Up to 80% of gifts to nonprofit organizations are made by individuals, not corporations, Walter said. So even if the donations are smaller, they will be consistent and provide a more stable, reliable revenue source.

“We also know that donors who give consistently tend to maintain that giving relationship with the organization,” Walter added. “This means it’s easier for the nonprofit organization to engage with them."

Creating a habit of regular giving also means a change in mindset, he said. “Donors who give in this way are more apt to see the donation as an investment in an organization.”

Walter said this change should inspire nonprofits to communicate differently with their donors. He suggests four steps for them this year:

  • Engage with donors.
  • Keep them informed.
  • Talk to them about the effects of their giving, not just the act of giving.
  • Share how the pandemic is affecting their operations.

While most donors give to nonprofits because of an affinity for the cause, some legislators don’t want to take the chance that the reduction in tax benefits will lead to a decline in donations.

Some, like U.S. Sen. James Lankford (R-OK), are advocating for changes in the tax code that will allow for above-the-line deductions for charitable gifts, which would mean that donors won’t have to hit the standard deduction threshold to qualify.

“Any type of incentive we can provide to the giving population is going to be beneficial to the nonprofit community,” Walter said.

Perfect storm

Justin Harlan, Senior Executive Director of Reading Partners, knows firsthand how challenging this year has been for nonprofits. He said considering the state of the economy, the job market, the pandemic and the tax change, “it’s a perfect storm for not giving…at a time when giving is needed the most.”

Reading Partners, a BOK Financial community partner, is a national nonprofit organization committed to helping children become lifelong readers by pairing volunteers with under-resourced schools to work one-on-one with students who struggle with reading.

Due to the pandemic, fundraising events have been cancelled and discretionary income is under a microscope in many households.

“It’s a challenging fundraising market for nonprofits,” Harlan said.

Like many other nonprofits, Reading Partners receives the majority of their typical individual donations at the end of the year.

But Reading Partners is ahead of the curve, and Walter says they are an example of what nonprofits should be doing.

The organization’s strategy targets sustainable, consistent funding through multi-year commitments, foundation gifts and strong partnerships that are likely to renew.

That’s the base of how we fund our operations,” Harlan said. “We analyze our anticipated individual giving to assess the responsible way to grow, so that variable dictates if we expand or cut back.”

For all nonprofits, Harlan offered this perspective: “This presents a great time to be innovative, to think about what we’ve never done that might work now. Everybody is trying new things and trying to figure out the new normal.

“There are things we will do now that will last beyond COVID-19, so use this time to try a number of different strategies to see what works.”

Scarcity leads to innovation, Harlan added, and he called upon individuals to step up and support nonprofits that are struggling.

“People oftentimes see nonprofits as being sustained through foundations or corporations or governments,” he said. “They think ‘oh they don’t need me.’ When it comes to nonprofits whose causes mean a lot to you, don’t assume someone else is helping. If you have the passion and the means to do so, please give.”

Beyond fundraising events and support from foundations and companies, nonprofits need the support of individuals to thrive.

“Don't let lessened incentives keep you from donating. With all of the challenges that 2020 has brought us, it’s even more important that we support the nonprofit organizations that we are passionate about,” Walter added. “If there's a nonprofit you believe in, consider donating and supporting their mission. These organizations are vital parts of our communities."