Tax Breaks Could Nudge Cautious Donors to Give More

A quarter of donors are so worried about the economy, they plan to give less this year than they did last year. But learning of the new charitable deduction available to many taxpayers — something many people are unaware of — could ease that impact, new research has found. And that is something that nonprofits should take into account when corresponding with donors, experts say. 

Concerns about the economy are weighing heavily on donors. More than two thirds of donors surveyed thought the economy was stagnant or getting worse. Nearly half of donors thought it would take more than two years for the economy to get better.

Researchers surveyed 903 donors and 597 nondonors late last year, asking about the economy and the tax changes. Three quarters of respondents didn’t know about the tax-law changes that would give people who take the standard deduction a tax break of up to $1,000 if they’re single and up to $2,000 if they’re married. Hearing this news shifted opinions on giving.

“Once exposed to that, that’s where we started seeing the donors move,” says Josh Crowther, a vice president at Dunham+Company, which conducted the research, which was released this month. After learning about the tax changes, 13 percent of those donors said they would give more.

Use the Right Approach to Reach Pessimists

With donors feeling pessimistic about the economy but buoyed by tax law changes, nonprofits should emphasize their long-term thinking when connecting with potential donors, says Cherian Koshy, a longtime fundraiser and author of Neurogiving: The Science of Donor Decision-Making.

That way donors knows the organization will be ready when they are.

“They don’t stop being generous because of economics,” Koshy says. “They just change the timing of their generosity.”

Koshy wasn’t surprised to hear that information about the tax law overrode pessimism about the economy. “Evidence has been really consistently clear that tax law does impact giving,” Koshy says. 

It can be especially important to those on the fence, he says, where a tax break can push them in the direction they were already interested in going. The survey also found that among nondonors, one-third said they planned to give to a charity after learning of the tax break.

Inform Donors About the Tax Law

The big problem for charities is that most donors don’t know about the tax-law change, according to the survey. That means nonprofits need to share information about it with donors far and wide, says Rick Dunham, founder of Dunham+Company. He recommends including a drop-in slip with gift receipts that includes a “Did You Know” fact sheet about the tax break available to those taking the standard deduction. 

While there are changes in the tax law for itemizers, Dunham believes they would be too complicated to get into in such a fact sheet. Itemizers who have a higher net worth often have accountants or financial advisers assisting with maximizing tax advantages, he says.

Along with pointing out tax advantages, fundraisers should emphasize how donors might feel a sense of belonging to a nonprofit’s community, Koshy says. 

“Your goal is not just to have dollars in the next month or in the next six months,” Koshy says. “It’s to have people who buy in over a longer period of time.”