Is the worst over?
As we all know, the “Great Recession” has created a challenging fund-raising environment since 2008. People traditionally give from discretionary income and wealth, both of which have been affected negatively by the current recession. High unemployment and static salaries along with falling real estate and stock prices have resulted in a difficult fund-raising climate. In spite of the recent positive growth of the economy and rebound of personal wealth (see page 2), questions remain about the overall health and direction of the economy.
This spring, the National Bureau of Economic Research, which monitors business cycles of recession and recovery, met to discuss the status of the economy. The Business Cycle Dating Committee found that though most economic indicators were turning in a positive direction, it would be prudent to wait until more accurate revised figures are available before deciding the recession has ended.
On the positive side, unemployment has dropped in recent months and household net worth has seen a substantial positive rebound over the past 12 months. Also, in spite of the worst economic recession since the Great Depression, most individuals have continued to give, and charitable giving continues to be relatively resilient in the face of difficult economic conditions.
It is especially important that those responsible for fund raising take charge of those efforts this year and make sure solicitation plans are fine-tuned for the remainder of the year. Ask other members of the fund-raising team to decide how to improve their efforts this fall. Cross-train staff members and make sure that those in contact with donors understand major and planned gift strategies or techniques that are most likely to work in today’s challenging environment. Increase the level of personal contact with donors and prospects who have the capacity to make larger gifts. Ask existing donors to consider additional gifts this fall. Supply prospective donors with further information to assist them with philanthropic gift decisions this year. Pay special attention to thanking and recognizing donors. Personal visits, notes, and telephone calls will be particularly important. Remind and inform donors again and again about the programs that their gifts make possible.
Special challenges in 2010
In addition to making sure the basics are covered, recognize that there are special challenges and opportunities to consider in 2010. Are you prepared to respond to donors who tell you that their advisors are suggesting they put off this year’s gift until 2011 to “take advantage of greater tax savings” then?
A variety of tax cuts enacted by President Bush are scheduled to expire after 2010. Financial planners may be advising clients who are anticipating a hike in income tax rates to accelerate income now and hold off on charitable giving until 2011 when higher tax rates may make their deductions “more valuable.”
You may wish to remind your donors that any income they do not deduct in 2010 will be subject to this year’s income tax rates, as well as other taxes and fees that may or may not come into play in 2011. For example, suppose a donor is considering giving $10,000 this year. If he makes the gift in 2010, he will save up to $3,500 in income taxes on this year’s tax bill. If he defers the gift to 2011, he will have to pay the $3,500 in taxes, which will have the effect of reducing the $10,000 he had planned to give to just $6,500.
Other less obvious variables may come into play. The donor may find he is subject to the alternative minimum tax (AMT) in 2011, or the administration’s proposal to cap charitable deductions at 28% may be adopted. In either case, the donor may potentially save more by making a gift in 2010 rather than waiting until 2011.
Additionally, high-income donors are scheduled to once again be subject to a 3% reduction rule for itemized deductions in 2011. In this situation, if the donor decides to give $10,000 worth of income next year, the 3% reduction rule could result in the elimination of all or a portion of the “extra savings” he expected to enjoy by delaying the gift.
The determination to delay a deduction must also take into consideration other factors, such as unforeseen changes to the tax system, income level, desire to complete a pledge, urgency of mission, and the time value of savings.
In today’s uncertain world, the ability to make a gift this year and to claim an offsetting deduction for its full value may be “worth” more to a donor than the conventional wisdom of deferring deductions to a year with higher tax rates would indicate.
Portions of this article are based on the Sharpe webinar “How to Win in 2010.”