As 2019 winds down, it is important to remember charitable commitments. The first Cornerstone blog post in January 2018 covered charitable giving, and a key objective of that blog was getting the biggest bang for the (charitable) buck. Whether consideration is given to charitable Multipliers, Cost/Benefit analysis, or Impact criteria, charitable giving provides immense benefits. For example, what is the impact of $1,000 invested in education for children within a Christian environment in Haiti compared to consumption of an expensive $1,000 bottle of wine? Charitable giving also gives the donor a greater sense of purpose and meaning compared to additional portfolio investment gains or consumer spending. For additional content See original blog Charitable Contributions
Listed below is an update.
America is a very charitable nation:
Americans on a per capita basis voluntarily donate about seven times as much as Europeans and twice as much as Canadians according to the Philanthropy Roundtable. Philanthropy Roundtable Statistics
Charitable Giving was up 0.7% in 2018:
Americans made $427.71 billion of charitable contributions in 2018. This was up 0.7% from 2017, but down -1.7% on an inflation-adjusted basis. This giving accounted for 2.1% of US GDP.
Giving went to the following major groups:
–Religion remained the largest charitable category in the U.S. at $124.52 billion and 29% of total giving. Giving to religion (Christians and all other faith groups) was down 1.5% from the prior year. This decline is partly explained by negative 2018 stock market performance, but the 2017 tax law changes were another significant factor. (More commentary below in the Tax Law Change section below.) A longer-term factor is that religion continues to lose market share to other charitable categories over the last 30+ years.
–Human Services (12%),
–Grantmaking Foundations (12%),
Charitable Giving by Source:
–Individuals contributed 68.3% of total giving at an estimated $292.09 billion. Individual giving declined 1.1% in 2018 compared to the year before, and much of this decline can be attributed to the stock market decline and the 2017 tax law change.
–Foundations increased contributions by an estimated 7.3%, to $75.86 billion in 2018. Data on foundation giving are provided by Candid (formerly known as the Foundation Center).
–Bequests totaled an estimated $39.71 billion in 2018, remaining flat with a 0.0% increase from 2017.
–Corporations charitable giving is the smallest category at 4.7% of total giving. Corporate giving for 2018 came in at $20.05 billion, up 5.4%. Although the stock market was negative in 2018, corporate profits were up.
Other Charitable Statistics:
Giving by income level: As one would expect, wealthy individuals give the highest $ amount, but the lower-income group (households making $25,000-$45,000 in current dollars, not the truly poor) gives more than middle-class Americans based on a percentage of income. While only about a third of low-income individuals give any money at all, those that give are extremely generous and are highly motivated by religion.
Religious practice is highly correlated with generous giving. Although religious givers (Christians and all other faith groups) strongly support religious causes, they are also more likely to support secular causes than the non-religious.
Red state versus Blue state: “The electoral map and the charity map are remarkably similar” with red states correlated with higher charitable giving. Or to quote the Chronicle of Philanthropy’s 2012 summary of its giving research, “the eight states that ranked highest voted for John McCain in the last presidential contest…while the seven lowest-ranking states supported Barack Obama.”
2017 Tax Law Change Impact:
One important change affecting individual 2018 giving is the drop in the number of individuals and households who itemize charitable and other deductions on their tax returns. This shift came in response to the federal tax policy change that doubled the standard deduction. More than 45 million households itemized deductions in 2016. Various studies indicate that itemizing tax deductions may have dropped to roughly 16 to 20 million households in 2018. Given that more individuals and households (using the higher standard deduction) received no tax benefits from charitable contributions, it is somewhat reassuring that individual charitable giving declined by only 1.1%. This is a complex issue with many variables and it will take several years for a more definitive understanding of the tax law change on individual contributions.
–Approximately 30% of the adult population,77 million Americans, volunteer their time, talents, and energy to making positive contributions according to the National Philanthropic Trust.
–Americans contribute $167 billion of their time to communities, assuming the 2017 national value of volunteer time is $24.69 per hour.
–The top four types of organizations that use volunteers are: religious (32.0%); sport, hobby, cultural or arts (25.7%); educational or youth service (19.2%); and civic, political, professional or international (6.2%).
–The top four national volunteer activities are fundraising or selling items to raise money (36.0%); food collection or distribution (34.2%); collecting, making or distributing clothing, crafts or other goods (26.5%); and mentoring youth (26.2%).
Sites for checking Charities:
Since we all want the “Biggest bang for the buck”, it is helpful to view websites that rate various charitable entities. These sites help identify key factors including giving effectiveness, fund-raising costs and overhead costs. Some good ones are as follows:
Center for High Impact Philanthropy-CHIP is the University of Pennsylvania’s multidisciplinary nonprofit center that focuses on maximizing social impact. https://www.impact.upenn.edu/
Charitable Giving Tax Requirements, Considerations and Strategies:
–Request a receipt if you make a donation of $250 or more to a single charity. But if the donation is in cash, you’ll need a receipt or supporting bank records, regardless of the amount.
-Tax Deductibility. If your standard deduction exceeds your charitable contributions and other deductible expenses, then you likely won’t itemize deductions on your tax return. Even though the standard deduction precludes charitable tax savings, your favorite charities still benefit, and this generosity likely greatly exceeds any income tax savings.
–Long-term capital-gain property: You can deduct the full fair market value of appreciated long-term assets (like stocks or mutual funds and Exchange Traded Funds) that you’ve held for more than one year. In addition, if you donate stocks or other investments, you pay no capital gains tax. Donating highly appreciated securities–instead of cash can be a very effective and tax-efficient way to support a charity. Generally, if your assets have appreciated in value, it’s best not to sell securities to generate the cash you need for a donation because you pay tax on the capital gains. Contributing the securities directly to the charity increases the amount of your gift as well as your deduction.
If you are holding securities with a loss, it’s usually better to sell first. By doing so, you can take the capital loss for tax purposes and then donate the cash. The tax aspects of charitable giving can be complex and it is good to discuss your personal situation with a tax professional.
Donor Advised Funds: Given the fact that the 2017 tax law doubled the standard deduction, some individuals may consider “bunching” their charitable contributions to enable them to itemize deductions only in some years. A Donor Advised Fund-DAF can be used to accomplish this bunching strategy whereby you contribute multiple years-worth of giving into one year in the DAF. These bunched contributions can rise to a level that allows itemizing deductions and getting a tax reduction in that year. This aggregated amount can be contributed to a DAF maintained by a financial institution like Schwab Charitable, Fidelity Charitable or many others. A DAF contribution in a particular year may enable eligibility for itemizing deductions in that year and thus a deduction for the DAF contribution. Then in subsequent years the donor can direct that the funds in the DAF be distributed to certain organizations over a number of years in the amounts and at the times desired.
Donations Directly from your IRA Account: Individuals who have attained the age of 70 ½ are required to make Required Minimum Distributions-RMDs. However, instead of making these RMDs and paying taxes on these IRA withdrawals, tax law allows qualified charitable contributions up to $100,000 to be directed from IRA accounts to a preferred charitable entity. This allows a reduction of your taxable income if you do not itemize deductions (and thus do not receive a benefit for charitable deductions).
Charitable giving has many dimensions and broad-based benefits. Hopefully this update and the original blog are helpful. As always, your comments and feedback are appreciated.
Jeff Johnson, CFA
October 26, 2019