The new tax plan from Donald Trump and the GOP has drastically changed the landscape for fundraisers in charity arts organizations. By altering the standard deduction, supposedly in an effort to make individuals tax preparation much simpler, it has also created a new paradigm that does not well encourage individuals to make donations that they can later write off on their taxes. Here’s why.
In the past, by making donations to charitable organizations, an individual was able to deduct those donations from their taxable income thereby lowering their tax liability overall at the federal and often state level. So if you donated $500 to charity, you would remove $500 from your taxable income and then the portion of that that you would have paid to taxes as income was removed. This was a large contributing factor encouraging the giving of money to charities that you support.
Now, with the standard deduction being much higher, it creates far less need to itemize deductions for most individuals on their tax return. Instead they can just take the standard deduction without having to have made any itemizable payments, such as those to charities. Only in the event of a relatively high level of income will an individual or family need to itemize on their tax return. Due to this there is far less incentive to come up with tax-deductible expenses in order to reduce tax liability.
This could mean that many individuals may choose not to contribute to charities and instead keep that money for themselves, since they’ll get the standard tax deduction anyway. Without tax deductibility being an encouraging factor in donating, what will be the new strategy for charities, including performing arts organizations, to encourage donations?
Alternatively, could the increased standard deduction put some more money in the pockets of donors who want to support you, and lead to increased giving? This article seems to think so.
Hopefully many donors will want to financially support the work that you do despite this change. It remains the strongest reason a person may choose to donate. They love what you do. They want to support your work. If you can also make especially clear that your organization cannot survive without contributed income, and not only on earned income from things like ticket sales and education program fees alone, you can help them to understand why their donations are critical to your survival.
Granting organizations and corporate support will play an even more important role with the sizable risk of individual giving declining. However, their income sources could be affected also by the new tax plan. The down line support that they provide could change as the effects ripple out over time, and of course now there is talk of Trump wanting to cut funding to the NEA and other arts and humanities funders.
Increased prices may be required as well. If an arts organization has survived on a balance of 50% earned income from sales with a 50% contributed income level to balance the budget, the percentage balance may need to shift to higher on the earned income side. Of course depending on your patrons, this could reduce sales as prices are increased resulting in bigger problems in the end.
What does YOUR organization plan to do in this shaky and changing fundraising environment? How will your message shift? What combination of tactics do you feel are needed or are planned to maintain your bottom line?
Patrick Spike – Marketing Director, Arts People
Arts organization consultant
Former Board Member Portland Area Theatre Alliance
Former Audience Development Director & Board Member Bag&Baggage Productions