Helping Your Donors Navigate Tax Season

Tax season is a great time to communicate with your donors about how they can make smart decisions about their giving. 

In fact, if you have donors who are required to make annual distributions from their individual retirement accounts, there is still time for them to receive a benefit on their 2021 tax returns. 

According to IRS rules, anyone who has an IRA must take a required minimum annual distribution (RMD) from their accounts once they turn 72. 

But that time is growing short. Eligible donors have until Tax Day (April 18) to give money directly from their IRAs to your nonprofit. However, the donor’s first RMD must be taken by April 1 of the year after turning 72. A donor who does not take the RMD has to pay a penalty of 50% of the RMD amount. 

This distribution is taxable. But the IRS has a special exception: Any money from an IRA that is paid directly to a qualified nonprofit is exempt from being taxed. 

This is a wonderful benefit for donors — and advanced fundraisers are wise to provide their donors with advice on how to make tax-smart decisions. Even if they don’t give right away, many donors will appreciate your counsel. 

Guiding Your Donors During Tax Season 

LAPA Fundraising’s client, Care For the Homeless, offers an excellent example of how to share information with donors about the tax benefits of rolling over their required annual IRA distributions to charity.  

Care for the Homeless created a special page on its website that explains the process and includes two links to resources that provide more information. 

Its messaging also includes a note for those who are turning 72 this year, advising them that it’s never too early to plan ahead. 

You can create similar messaging through a page on your website. You can also consider including an item about IRA gifts in your April newsletter or in a stand-alone email marketing message. 

If you have information about which donors are 72 or older — or if you’ve identified through surveys which of your donors have IRAs — you can segment your messaging on this topic to ensure that it’s reaching the people most likely to give through their IRAs. 

Beyond IRAs: Savvy Giving Strategies 

While the IRA rollover will appeal to only a portion of your donor base, you can share other ideas that will help younger donors make money-smart giving decisions. 

These ideas include: 

  • Giving stock — When donors give shares of stock directly to a public charity, they avoid paying any capital gains taxes at the time of the sale and your charity will benefit from getting the full market value of the stock. The donors also get a deduction on the full market value. That is a double win for their tax bill. If your nonprofit cannot accept stock gifts, the donor can put the stock into a donor-advised fund at a community foundation and then grant the money right away to your organization. 

     

  • Using credit cards for monthly gifts — When donors make monthly recurring gifts to your nonprofit on a credit card, they can deduct the full amount of the gift before fees — and they can often get points or cashback benefits.  
  • Leave behind a legacy Ask your donors to make philanthropic gifts through their will or trust. It is a common way to give and make an impact. Though donors won’t receive the double tax benefits of gifting during their lifetime, a major benefit of a charitable bequest is that the donors can ensure your financial needs are covered before giving assets away to others. 

Donors appreciate guidance that helps them maximize their giving. But remember to include disclaimers in all your messaging that remind them to consult with a financial adviser or accountant before using these strategies.

How have you provided guidance to donors about taxwise or financially prudent giving? Let us know below, and please share this post with your colleagues. 

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