By Meredith Friedman, CFRE, Vice President of Transformation
YOP, NAP, PRC, MHC – the alphabet soup of tax credits in Missouri goes on and on. My favorites are the WGC (Wine and Grape Production Credit), though I’ve never actually seen or used those before! 😊
What are tax credits anyway? A Missouri Tax Credit is available when qualifying organizations receive “credits” from the state of Missouri through an application process. Then eligible donors give to the nonprofit, apply for, and receive a “credit” on their Missouri state taxes equaling 50% or 70% of their gift, depending on the type of credit received.
For example, a $10,000 gift may only cost a donor $1,700 out of pocket:
- Donation: $10,000
- MO Tax Credit (50%): $5,000
- Out of Pocket: $5,000
- Federal Deduction: $3,300 (assuming a 33% tax bracket)
- Total Out of Pocket: $1,700
The tax credit combines with the donor’s federal deduction and state charitable income tax credit to lower the actual net cost of donor gift to cents on the dollar. In the case of a 70% credit, a donor can even come out ahead on their taxes! Of course, with anything dollars-related, always consult a tax professional.
Why are we hearing more about tax credits right now? Starting this July, Missouri will increase many of their eligible tax credits from 50% to 70%, and some will be considered “unlimited.” On the surface, this sounds like terrific news. But, as in life, things are rarely as simple as they seem!
As a fundraising professional, donor, and philanthropist who loves, fully understands, and utilizes tax credits, I like to refer to tax credits in Missouri as an organizational Blessing and Curse. Let me give a few examples:
- Blessing: Our donors get a 50% or 70% tax credit to help negate their Missouri tax liability!
- Curse: Are the people giving financial gifts really our donors who love the mission or are they just shopping around for tax credits? Try to avoid transactional fundraising, and work toward relational fundraising
- Blessing: People want to donate to us…and we don’t even know them!
- Curse: Will the new donors still give to us if we don’t have Missouri Tax Credits? Do these donors have a real connection to your mission? Risky, and donors won’t continue to give if they are chasing tax credits. Donor attrition becomes a problem.
- Blessing: We will be able to help more of our clients!
- Curse: Can we grow our programs to match our donors who want tax credits? We need to guarantee Quality outcomes for those we serve.
Donors may be getting messages like, “We have unlimited 70% tax credits!” But buyer beware! No wait…nonprofits beware, too! We can only give tax credits up to the size of the program budget. If we don’t have an endlessly increasing program budget (and who does?), we don’t truly have unlimited 70% tax credits. Be careful how you share this message with your donors – you don’t want to put your nonprofit’s integrity at risk.
So how do we best use tax credits? Approach the donors who love your organization the most. Ask them if they would like to double, or even triple, their gift. Explain to them the benefits of the tax credits – a visual typically helps to illustrate the program. Present tax credits as a bonus, NOT as the reason to give.
After donors increase their gifts, then love on them and let them know the impact of those gifts! Your donors will continue to support whether you have Missouri tax credits on not – and that’s what we all want – donors supporting the organizations they love the most in our community.
If you plan to jump into the mix that is the tax credit alphabet soup, make sure you have a strong understanding of Missouri tax credits, how many credits your nonprofit really has available, and a plan on how best to share those tax credits to help the people you serve and your donors. You don’t want the tax credit blessing to become your curse.
Questions about tax credits? Contact Let’s Build Hope at (314) 716-2496 or LetsBuildHope@lbh-stl.com.
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