Be SMART About Tax Reform

by Deirdre O'Donnell, CPA, Klatzkin & Company LLP – January 8, 2019
Be SMART About Tax Reform

Raising money has always been the biggest challenge that nonprofit organizations face. Under the Tax Cuts and Jobs Act (TCJA) of 2017, many taxpayers can no longer deduct charitable contributions; this has led many organizations to fear that their donations will dwindle.

Perceived Impact of TCJA

Beginning in 2018, the TCJA increased the standard deduction to $24,000 for married filing jointly taxpayers and $12,000 for single taxpayers. Individuals whose itemized deductions fall below these thresholds will no longer be able to deduct medical expenses, mortgage interest payments and, most importantly, charitable contributions.

Una Osili, professor and associate dean for research and international programs at the Indiana University Lilly Family School of Philanthropy, estimates that approximately 30 million households earning between $50,000 and $100,000 will no longer be able to itemize their deductions. Furthermore, a study conducted by the Lilly School found that 83 percent of individuals who itemize their deductions contribute to charities, while only 44 percent of those who take the standard deduction contribute.

These statistics may strike fear into the hearts of many nonprofit organizations. However, there are several ways for organizations to make the most of the new tax regulations. Smart nonprofit organizations will not leave the amount of contributions they receive to chance. They can establish realistic goals and adopt new strategies to build their brand, attract donors and solicit funds.

Be Smart

SMART is a common acronym used to describe a specific process for establishing and achieving goals. SMART goals are: specific, measurable, attainable, realistic and timely. Establishing SMART goals is the key to running a successful organization. Nonprofits with SMART goals know exactly where they are going and how they are going to get there. These organizations may find that they are in a stronger financial position now than before TCJA. Let’s explore why.

  • Specific goals tell donors (as well as employees, volunteers and the community) exactly what the organization needs and who they need it from. For example, $1 million may need to be raised annually to support operations. Decide on target markets (donors), what percentage of funds are needed from each demographic (e.g., typical households, wealthy individuals, government grants) and what must be done to appeal to each audience (e.g., events, campaigns, grant proposals). From there, an action plan can be developed and implemented to reach these target markets. Specific goals should include details that show potential donors exactly what the nonprofit wants to achieve, why and how this relates to the organization’s mission.
  • Measurable goals provide targets to clearly gauge success. One example of a measurable goal would be aiming to raise $25,000 per quarter or increasing key performance indicators such as donor retention rate or average donation size by 10 percent. Setting measurable goals is an easy way for nonprofit organizations to track their performance throughout the year.
  • Attainable and realistic goals must be set in order to get a true sense of how the organization is performing and to avoid disappointment at year-end. While it may be unrealistic for an organization to double its amount of contributions in one year, it may be more attainable to increase the number of donations from wealthy individuals by 5 percent. It is important for non­profits to dream big with their goals, however they must remember to be honest about what can and cannot be accomplished. If an organization sets goals they cannot reach, they will only be disappointed and feel less motivated going forward when these goals are not met.
  • Timely goals encourage nonprofits to achieve milestones and goals within a set timeframe. This can create a sense of urgency and motivate organizations as well as donors. It is important to keep everyone — including administrative staff, donors and volunteers — aware of the time­frame for the goals. One idea to keep in mind when setting timely goals is that many individuals may plan to bunch their donations in order to make the most of their itemized deductions. This means they may double up on contributions in one year to surpass the $24,000/$12,000 mark, then choose the standard deduction in the following year. Creating timely goals and a sense of urgency that align with top donors’ tax plans could greatly benefit the organization.

Like any company, nonprofit organizations need to operate as businesses in order to succeed. While the TCJA may present new challenges to non­profits, setting SMART goals will help organizations attract donors who believe and trust in their mission, regardless of the tax deduction they may (or may not) receive.

Deirdre O'Donnell

Deirdre O'Donnell, CPA, is a supervisor at Klatzkin & Company L.L.P. and a member of its nonprofit team. She is a member of the NJCPA and can be reached at 609-890-9189.

This article appeared in the January/February 2019 issue of New Jersey CPA magazine. Read the full issue.