All You Need to Know about Decrease in Itemized Charitable Deductions

When it comes to philanthropic trends, recent media reports have left many fundraising professionals lost in the weeds and confused by misleading analysis. So, I’m going to give you the most important insights about individual giving that you need to know now along with three practical tips.

First, here’s some quick background. Overall, charitable giving reached an historic high in 2018 with $427.71 billion contributed, according to Giving USA 2019. Despite this great news, individual giving, excluding bequests, fell 1.1 percent to $292.02 billion. There are many reasons for the slight dip, which you can read about in one of my prior posts. One of the factors that may have played a role is the new tax code. With it, we saw a dramatic increase in the number of taxpayers taking the standard deduction and a drop in the number choosing to itemize their deductions.

That brings us to a big takeaway that almost no one is talking about:

The charitable tax-deduction is not a substitute for a solid case for support.

This was true prior to passage of the Tax Cut and Jobs Act; it’s even more true today. Before the new tax code went into effect, less than one-third of taxpayers itemized their returns, and less than one-quarter of taxpayers claimed a charitable tax-deduction. Now, only about 10 percent itemize and 8.5 percent claim a charitable deduction, according to the Tax Policy Center. To put things another way, for the majority of donors, tax issues were never a viable consideration when it came to charitable giving. Today, tax considerations are an issue for even fewer people.

This all means that the classic, but foolish, year-end appeals touting the tax benefit of giving before December 31 are even more irrelevant than ever. Furthermore, it means that the relevance of the idea of year-end giving itself has been diminished. If someone doesn’t need to do year-end tax planning, why would they need to wait until year-end to donate? The reality is most people can give at any time with the same effect on their finances.

In light of all of this, here are the three things you should do:

1. Stop Talking about Taxes. Do not talk to donors about the tax-deductibility of charitable giving unless you have reasonable confidence that they will be itemizing their tax return. Remember, 90 percent of the public will not be able to take advantage of a charitable gift tax-deduction. For gifts involving tax implications (e.g., IRA Rollovers, gifts of appreciated stocks, etc.), you will still want to talk about the relevant tax issues though you should still not emphasize taxes over the case for support.

2. Develop a Solid Case for Support. Make sure you design a solid, inspiring case for support. This has always been important, but is now more important than ever. In the past, many charities have relied on the crutch of philanthropic tax benefits rather than giving prospects an inspirational reason to give. This was a faulty approach because the majority of taxpayers were non-itemizers and, therefore, unable to receive any tax benefits for their philanthropic gifts. In addition, taxpayers who did itemize could get the same deduction by giving to any charity. Relying on the tax argument will be even less effective under the current tax code because about 90 percent of taxpayers choose the standard deduction rather than deciding to itemize.

3. Do Not Over-Focus on Year-End. Do not rely so much on the idea of year-end giving. In the past, many donors might have evaluated their tax position before making their year-end gifts. Some will still do so, though that number has declined sharply. Given that so few people have a tax-review reason to delay giving until year-end, there’s less of a reason for fundraisers to put the bulk of their efforts into year-end appeals. Instead, you might find it more advantageous to appeal to prospective donors at other times of the year when other charities are not bombarding them with competing solicitations and when their disposable income is not being diverted to spending on holiday gifts for family and friends. I encourage you to test appealing to people at other times of year to determine the timing that will work best for your organization. For example, I’ve worked with many charities that had greater fundraising success in January/February than they did in November/December.

To summarize: Individual giving remains strong though it did dip somewhat in 2018. To raise more money for your organization, spend less time talking about tax benefits and more time talking about your inspirational case for support. Test making fundraising appeals at different times throughout the year rather than focusing on the increasingly irrelevant idea of a December 31 deadline.

You can’t control what the tax code says. Instead, focus on controlling what you can control. Craft a stronger case and, then, engage people and ask for their support. That’s the most important lesson we can learn from the data.

For my detailed analysis of the Giving USA 2019 data, click here. For my post about misleading media reports regarding the decline in charitable-gift deductions, click here.

If your organization has tested fundraising appeals at different times of year, I would love to hear what you’ve learned. So, please let me know.

That’s what Michael Rosen says… What do you say?

Update (July 31, 2019): Today, The Giving Institute released minor revisions to Giving USA 2019. The corrected data confirms giving by Individuals totaled $292.09 billion, accounting for 1.9 percent of disposable personal income.

2 Comments to “All You Need to Know about Decrease in Itemized Charitable Deductions”

  1. Spot-on Michael. Thank you so much, as always, for your great tips and insights.

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