Tax Cuts and Jobs Act: A Gift for Donor Relations Professionals

Krystina Wales
Director of Donor Relations & Stewardship
Greater Baltimore Medical Center

After the Tax Cuts and Jobs Act was officially signed in late 2017, nonprofits held their breath, anxiously awaiting the precipitous dip in funding they were sure was to come. Nonprofits feared individuals would be less incentivized to give because the benefits of itemizing or relieving the burden of estate taxes were less attractive or applicable in some cases.

According to the Association of Fundraising Professionals’ Fundraising Effectiveness Project (FEP), a collaborative research effort designed to measure nonprofits’ effectiveness, the concern was not unwarranted. In their 2018 Quarter 4 report, the FEP found giving did increase—but due to major gifts, which was to be expected, as those donors can still itemize.

On the other hand, revenue from small gifts and the total number of donors decreased, while retention numbers dropped a startling 14.9%. New donor acquisition didn't fare much better, decreasing by 7.3%.

So, what does this mean for taxes in 2019? People have one year of this law under their belt and they saw how it affected their taxes and portfolios in 2018. They can react one of two ways: realize it wasn't as bad as they thought and maintain behavior, or pull back even further.

Whichever reaction they have, this is a shining moment for the field of donor relations and stewardship. Because individuals are considering their charitable gifts more meticulously, our profession has an opportunity to show our worth with good storytelling and follow through.

Nonprofit organizations might consider doubling down on communications, trying desperately to stay in front of their audiences amid the noise of year-end appeals and Giving Tuesday promotions. But quality over quantity is king.

Telling a good story and finding a place that tugs at donors’ heartstrings will get through to them more than multiple generic "please give" emails. (Read my article in the February 2019 Hub for how to tell a compelling story.) Don't give donors multiple funding options in your year-end appeal. Build a portfolio of strong messaging around one central cause that allows donors to see where their impact can be. This tactic will also help later on with follow through and impact messaging.

Educate donors on how their gifts will be applied. Be clear about how much it costs to fund a specific part of your program. The more granular you get in articulating the impact of gifts, the more likely donors are to see how they can make a difference, even with a small gift.

Year-end appeals were convenient in their timing because of the tax implications and draw of the holiday giving season. But with diminished tax benefits for annual gifts, it won't be the time of year that compels people to give, but the case for support. Structure your appeals around priorities rather than the time of year. 

Major gifts will continue to come in and should be stewarded accordingly. They are often the largest source of income for organizations. But don't let gift amounts dictate stewardship planning. New donor acquisition and donor retention are major priorities because they are the future major gifts. Steward them with as much rigor as major donors. Not giving them the attention they deserve because their gift is "not large enough" will only hurt your portfolio in the long run.

Nonprofits took a hit from the Tax Cuts and Jobs Act, but it was a gift for donor relations professionals. This is our chance to show nonprofits how imperative our roles truly are.