Uncertainty on federal tax changes for 2013 has created a challenge for non-profits looking to raise funds during the key year-end giving period.
The time between Thanksgiving and Dec. 31 is crucial for non-profit organizations to reach donors who make end-of-year gifts for tax purposes, but this year many groups are finding that the biggest factor affecting fundraising is what happens after Jan. 1.
The uncertainty of the tax situation and status of charitable deductions through 2012 and into 2013 have affected giving, officials at charities say. But many are trying to find strategies to overcome the ambiguity and reach directly to donors.
This year the so-called fiscal cliff and the uncertainty of what a tax compromise in Washington might mean for charitable deductions has made an always uncertain tax situation more clouded, said Jennifer Leonard, president of the Rochester Area Community Foundation.
"There is ambiguity over the tax rates for next year, what the exemptions would be, the charitable deductions. That kind of ambiguity is not good for giving, which is a very discretionary act," she said.
Donors like to have confidence not just in the charities they are supporting but also in the potential tax incentives that make their gift more personally beneficial, she said. The year has been fraught with uncertainty, with the fiscal cliff being the most obvious factor.
"The fiscal cliff may be the headline, but there's a whole set of uncertainties that are affecting people's behaviors," Leonard said. "There's also an uncertain stock market and other factors that make it hard for donors to know with certainty what the future will bring."
Last year an exception expired that had allowed donors to give to charity directly from individual retirement account rollovers, and though it was expected to be renewed this year, that never happened, Leonard said. Donors still believe it will come back, possibly retroactively covering donations made from IRA rollovers, but few people are brave enough to risk using the arrangement.
Overall, the factors combined to dampen charitable giving and created a slower-than-normal giving season at year's end, Leonard said.
"This has been a good year but not necessarily a great year for giving," she said. "Our giving was down slightly from last year, but despite the uncertainty we are seeing it perk up a bit at year-end."
For the Community Foundation, giving in 2012 has brought mixed results. The organization was able to expand its total donors to 2,112 as of last week from 1,720 at the same point in 2011.
But overall, giving has declined at the Community Foundation. Through this date in 2011, the agency had brought in close to $12.9 million, but this year that number was $11.6 million.
The bulk of the changes came from a decrease in planned gifts, which Leonard called "lumpy."
There could be a rebound in 2013 if the economy continues to improve, she noted.
The fiscal cliff could bring more challenges for the non-profit sector, Leonard said. If income taxes increase with expiration of the Bush-era cuts, donors will likely feel less compelled to give, she noted. And possible job cuts by the federal government could increase unemployment, further affecting giving.
Even a potential agreement that could forestall the fiscal cliff could come at the expense of changes to charitable deductions, Leonard said.
"Because charitable giving is discretionary, it somewhat mirrors the consumer confidence indices," she said. "This fall people felt a bit more buoyant and confident on giving, just as they have been on shopping, though it's not been overwhelming because of the uncertainty."
A proposal made by President Barack Obama during fiscal cliff negotiations with congressional Republicans was seen as a good sign by many non-profit leaders, the Chronicle of Philanthropy noted.
Obama had favored lowering the maximum amount that wealthy taxpayers can deduct for charitable gifts from the current 35 percent to 28 percent. But his proposal at mid-month called for a 35 percent cap for charitable deductions while limiting deductions for mortgage interest and state and local taxes to 28 percent. The change suggested to non-profits that their calls for maintaining the deductibility of charitable contributions were being heard.
The end-of-year giving period has not been without its positives, Leonard said.
This year a substantial gift tax exemption for transferring wealth was available, allowing wealthy families to give up to $5 million per person without tax.
Many charities focused heavily on how to use that gift tax exemption to advantage with major donors, Leonard noted.
Rochester charities also have pooled their collective strength for an event that quickly has become a staple for end-of-year giving at many charities. The United Way of Greater Rochester Inc. sponsored ROC the Day, a one-day fundraising event involving more than 660 non-profit groups.
The event brought in $875,000, topping last year's total of $567,000, and attracted more than 10,000 donors.
Carly Layton, United Way director of marketing and communications, said the event was important not only because of the money it raised but for the boost it gave to the non-profits that participated.
"We were overwhelmed with the feeling of participation," Layton said. "A lot of the non-profits went all-out on social media, and we saw a great response."
The success of ROC the Day was due to the collective power of the non-profits involved, Layton said. The United Way encouraged them to reach out to donors in whatever ways they could, creating a large-scale event that raised the profile of many of the organizations involved.
"Someone said it was like money dropping out of the sky," Layton said, "and in a sense it was. Non-profits here now have $875,000 more than they had before the event."
The day was a success for many of the organizations involved, she said. Though final figures were not available, she noted that Lollypop Farm came close to its 2011 total of raising $30,000 in one day. The figure is nearly triple what the organization brings in during the average day at year-end, Layton said.
The event was especially beneficial for smaller non-profits, she said. Because the United Way provided the infrastructure and operated the donation site, the participating non-profits were able to focus solely on outreach.
"It gave them the opportunity to have a great community-based outreach, letting them piggyback off of our efforts," Layton said. "For many of them, it was as much about reaching out to expand the donor base as it was the total. We had one small organization that was thrilled because last year they made $35 and this year they had $75."
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