Arts and Culture Nonprofits: A Guide to Attracting Qualified Charitable Distributions

by: Kelly Rockers
Verified by: CPA

October 11, 2023

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Some numbers in this article have been updated to reflect inflation-indexing, effective January 1, 2024.

Nonprofit organizations in the arts and culture space are always on the lookout for new ways to attract donations that enable them to invest in their mission. One such opportunity is Qualified Charitable Distributions (QCDs). 

Soliciting QCDs from donors has the potential to be a rewarding strategy for all kinds of tax-exempt organizations. When a donor makes a QCD, they receive significant tax benefits while also enjoying the opportunity to support a nonprofit whose cause they are passionate about. 

QCDs offer nonprofit organizations a fantastic opportunity to solicit donations from retired individuals. But as with all donations, there is competition to navigate. To successfully attract a high volume of QCDs, arts and culture institutions should adopt several strategies that give their organization the best possible chance of success. 

In this overview, we explore these strategies. We share a series of actionable recommendations that arts and culture nonprofits can implement to better educate their donors and build deeper relationships that promote the long-term sustainability of important program activities. 

An Overview of Qualified Charitable Distributions

Across the US, tens of millions of people have retirement savings accumulating in taxable IRA accounts. When individuals reach retirement age, they are required to take Required Minimum Distributions (RMDs) from their accounts each year. The retirement age is currently set at 72 years old, or 73 for individuals who turn 72 after 12/31/2022. 

RMDs are considered ordinary income, meaning individuals must pay income taxes on these distributions. However, not every individual needs this income during their retirement. Instead, they may elect to make a Qualified Charitable Distribution. Individuals can start making QCDs from the age of 70 ½. 

A QCD is a charitable contribution that an individual makes directly from their IRA account to a qualified tax-exempt organization. These QCDs cancel out RMDs, reducing the donor’s taxable income while enabling them to support the causes they care about. In 2024, individuals may make annual QCDs up to $105,000. If both partners in a married couple have sufficient funds in their respective IRA accounts, they can collectively donate up to $210,000 using this method.

QCDs aren’t just applicable to wealthy donors who contribute thousands of dollars each year – they offer federal income tax benefits regardless of the amount that is donated. A QCD lowers a taxpayer’s Adjusted Gross Income, reducing their tax base even if they only donate a few hundred dollars to a tax-exempt organization. Many states treat QCDs in the same way, although others require taxpayers to add any QCDs back to their income at the state level. 

For arts and culture organizations that receive significant non-cash donations, QCDs represent an extremely valuable opportunity to increase cash contributions. When donors itemize their tax return, there are limits to what they can deduct. QCDs effectively surpass these limits, allowing donors to contribute extra funds that both reduce their taxable income and don’t count toward their itemized deductions. 

Strategies to Attract Qualified Charitable Distributions

Building out a comprehensive donor management program is an important activity for all nonprofit organizations. Embracing the following strategies to solicit QCDs should be considered a key element of that, representing an attractive opportunity for organizations to receive incremental donations on a potentially recurring basis. 

Educate Donors on the Opportunity

Many qualified donors are unaware of the opportunities afforded by QCDs, instead taking their RMD each year, paying income taxes, and then using post-tax income to donate to your organization. 

By investing the time to create resources that educate donors on the tax opportunities of making a QCD, your organization will potentially be first in line for any donations. Proactively reach out to donors who are above the required age threshold, inquire whether they’ve heard of QCDs, and educate them on the tax benefits that QCDs offer. 

Arts and culture organizations should focus on educating audiences that regularly interact with their organization: individuals who visit exhibits, attend plays, support educational activities, and so on. It can also be worthwhile to consider demographic information and educate potential or existing donors in areas where communities place a high value on community support, diversity, and growth. Donors living in areas with strong ties to their communities tend to donate more often, and as such, focusing efforts on groups who have a greater interest in the arts and culture scene can potentially result in an increase in QCDs. 

Maintain a Detailed Donor Database

To be eligible to make a QCD, donors must be above the age of 70 ½. Arts and culture organizations should focus their efforts to solicit QCDs on donors in this age bracket, as all other donors are ineligible to make these forms of contributions. 

To track the personal information of donors, including their age, it’s best for arts and culture organizations to create a routinely updated donor database. Populate the database by combining your fundraising team’s existing knowledge of individual donors with informational surveys and notes on ongoing interactions with donors. 

This database shouldn’t just solely include personal information such as the donor’s age, but also information on the programs and causes they are most apt to support. Many database systems can be configured to automatically flag individual donors when they reach the age threshold to make a QCD, at which point the development team should proactively reach out to educate the donor on the opportunity.   

By using this technology to map donor information and trends, track past interactions, and store other important metrics, arts and culture organizations are able to focus their efforts on developing meaningful relationships with individuals who are more likely to make a donation through a QCD.  

Encourage Repeat Qualified Charitable Distributions

Many arts and culture nonprofits maintain strong relationships with donors who support their organization year after year. Donors like to support causes they are passionate about, and it’s often more effective for nonprofits to channel their resources toward building stronger relationships with existing donors than constantly recruiting new supporters. 

Because individuals must take RMDs every year once they reach a certain age, QCDs represent an attractive opportunity for nonprofit organizations to solicit repeat QCDs on an annual basis from their donors. Make sure donors are aware a QCD doesn’t have to be a one-time donation, but is a donation that offers repeat tax benefits year after year. 

It’s important for arts and culture organizations to have consistent touchpoints with their existing donors. Focus on updating donors about events within the organization, sharing recent news, events, and stories about the impact of the organization’s work. By keeping donors engaged and educated about the activities their donations are funding, organizations are more likely to nurture positive relationships that lead to repeat QCDs. 

Smith + Howard: Experienced Advisors to Arts and Culture Nonprofits

Building the capabilities to educate donors on the tax benefits of QCDs and proactively solicit these contributions has the potential to be a high-impact activity for all arts and culture nonprofits. In many ways, QCDs represent a win-win situation, particularly for existing donors, enabling donors to realize significant tax savings while supporting causes they are passionate about. 

At Smith + Howard, our experienced nonprofit accounting team works with a diverse range of arts and culture institutions across the country. Our professionals are proud to serve as an advisory resource for nonprofit leaders, helping to build successful financial strategies that enable arts and culture organizations to grow their impact. 

Our team regularly publishes educational content for arts and culture nonprofits and hosts dynamic events tailored to the nonprofit community. To learn more about how Smith + Howard can support your arts and culture nonprofit, contact an advisor today

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