Tax Act-ion Steps To Take

Businesses and their mood indicator, equity markets, have recently been expressing their view by moving primarily in one direction, up. Nonprofit fundraisers looking to raise money in the wake of the Tax Act, on the other hand, have been a bit more glum.

However! We leave room for hope.The complexities of the tax act (and there are many) have the potential to create an opportunity for development pros in one area, particularly.

Donor Advised Funds (DAFs) have been around for a while and are a familiar instrument to many financial advisors and accountants. They are a great tool for donors (and so fundraisers) who care about both taxes and charitable contributions.  While many existing DAF accounts are fairly sizable, financial advisors and tax planners can recommend them for people who would like to open them with a $5,000 minimum donation.

DAFs operate similarly to private foundations, with one important difference. They have no distribution requirements, either in terms of timing or in percentage of assets or income.

The National Philanthropic Trust reports that there is presently about $85 billion in nearly three hundred thousand DAF accounts. (For frame of reference, total US charitable giving in 2016 was just under $400 billion, according to Giving USA). Account holders contributed more than $23 billion dollars to these accounts in 2016 and granted more than $15 billion from them. The average size of a DAF account is nearly $300,000. (This is 50,000 foot-level data – let us know if you’d like datasets specifically relevant to your organization.)

Using a DAF as a donor is a multi-step process. First, you establish the DAF and fund it. There are many organizations with whom to do this. Then you add to it, whenever you like, and whenever it makes tax sense. The final step is to make donations from it to the charities you choose, when you choose. The timing of donations FROM a DAF has no tax impact on the donor; what matters from a tax perspective is when the money (or appreciated securities, for example) go INTO the DAF from the donor.

I have had conversations with fundraisers who get the sense that receiving donations from DAFs is an opaque process to them, and that can be so. That may be in part because there is no “usual” time of year to make donations from DAFs. To help manage that, ask donors directly if they have a DAF in place to manage their charitable giving or are considering setting one up as a result of the tax changes, and how you can best work with them in that case.

The anxiety stalking development professionals is, understandably, reduced donations as a result of the reduced tax benefits of making those donations.

Of course, tax benefits do support donations. As do honorable intentions. People are still in the habit of end-of-year donations, there is plenty of time to plan for December 2018, and that is crucial momentum to build on. In the meantime, focus on making the case for your cause and your charity, now. Build out your results metrics, your reporting, your outcome stories, and do your research to support your decision to launch that capital campaign. Put all of that great stuff into your social media, your core communications, and into the hands of your marketing team. Most importantly, ensure your Board – your top Ambassadors – have all of the information they need to go forth into the community and tell your story. Let us know how we can help!

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