Tax time tips for nonprofit donors

April 15 is right around the corner, and now is a good time to review a few basic tax principles related to charitable giving so that you're prepared for donor conversations. Tax planning is on their minds, and you don't want to miss an opportunity to secure a gift to your organization or through an endowment fund. 

Your donors give for lots of reasons other than a tax deduction.

With taxes on the minds of so many donors this time of year, it's important to remember that it's not all about the tax deduction. Charitable giving is a priority for many affluent families. Indeed, among people who own investments of $5 million or more, 91% of those surveyed reported that charitable giving is a component of their estate and financial plans. In another study, most affluent investors cited reasons for giving well beyond the possibility of a tax deduction and would not automatically reduce their giving if the charitable income tax deduction went away. During the fundraising process, be aware of donors' non-tax motivations for giving, such as family traditions, personal experiences, and compassion for your mission. 

Your donors may still default to giving cash, so you have to stay in front of them.

Many donors simply are not aware of the tax benefits of giving highly appreciated assets to their favorite charities. Even if you feel like you say it a lot, keep saying it. Donors often forget or are in a hurry and end up writing checks and making donations with their credit cards. It's important to remind your donors about the benefits of donating non-cash assets such as highly appreciated publicly traded stock, or even complex assets (e.g., closely held business interests and real estate). The community foundation can help you work with donors to give highly appreciated assets in lieu of cash if you have an endowment fund. This in turn can help donors reduce – significantly – capital gains tax exposure, and they can calculate the deduction based on the full fair market value of the gifted assets. 

Your donors may not remember the basic rules of deductibility.

It's important to know that the deductibility rules are different for donors' gifts to a public charity on one hand, and their gifts to a private foundation on the other hand. Donors' gifts to your organization directly, or to your endowment fund, are deductible up to 60% of AGI for cash gifts and 30% of AGI for gifts of other assets. Gifts to private foundations are deductible up to 30% of AGI for cash gifts and 20% of AGI for gifts of other assets. In addition, gifts to public charities of non-marketable assets such as real estate and closely held stock typically are deductible at fair market value, while the same assets given to a private foundation are deductible at the donor's cost basis. This difference can be enormous in terms of dollars, so make sure you let your donors know about this if they are planning a major gift.

Make it a habit to repeat the tax basics in your donor communications. This will help you grow your endowment fund not only during tax time, but also throughout the year. As always, the community foundation is here to help.

This article is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. If you're interested in starting an endowment fund, contact Brian Reitz at breitz@akroncf.org.