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Impact of the Fiscal Cliff Deal

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Waking up on New Year’s Day, you may have found your e-mail inbox crammed with appeals from nonprofit organizations seeking last minute gifts before the end of 2012.  Most reminded donors of the 12/31 deadline to claim a deduction on 2012 tax returns.

What wasn’t mentioned in most of those appeals was the potential impact of the fiscal cliff negotiations.

We heard a lot about the “fiscal cliff” and its potential impact on the nonprofit sector over the last few months. While some were raising alarm, others were advocating cautious optimism.  The recent Bank of America Study of High Net Worth Philanthropy suggested the affect would unlikely be seismic, with half of wealthy individuals surveyed reporting that they would maintain current levels of philanthropy if income tax deductions were curtailed or eliminated.

These survey results are likely to be tested as the legislation Congress passed on New Year’s Day to avoid the fiscal cliff includes the limits on tax savings that nonprofits had been lobbying to avoid.  According to Doug Donovan at the Chronicle of Philanthropy, caps for write-offs for charitable giving begin at the $300,000 level of household income and become more restrictive the more taxable income a person has.  And the legislation calls for further tax code revision that could keep nonprofits on the defensive for years to come.

So what should your nonprofit do to react to these changes?

1. Discuss with your top donors – This is not an issue to avoid, as your top donors are likely to be affected.  If your largest donor is considering a decrease in charitable giving, this is information you’ll want to know early enough so you can develop a strategy to replace those dollars.

2. Bolster your annual fundAs noted in the Bank of America study, many donors give without regard for tax implications. Those who are committed to your mission give generously because they believe in the impact of your organization.  How are you leveraging that message in new ways in 2013?

3. Check in on expected planned gifts – If you know of planned gifts t your organization, spend the first quarter of 2013 engaging those individuals. Changes to those gifts can happen at any time, and with estate taxes law likely to continue changing, you will want your organization to be front-of-mind for these individuals.

As with most things in fund development, the best plan is to be proactive rather than reactive.  Many boards and staff leadership teams have noted to PMA that they would have done things differently in 2007 if they had known the Great Recession was looming.  While the recent Congressional legislation may not have the same impact, there is no excuse for ignoring the issue.