Recently, the Wall Street Journal reported that charitable giving by individuals saw the biggest drop in nearly ten years. According to the article, donations dropped by over 3% after four straight years of increased giving.
The article suggests that the biggest reasons for the decline were the changes to the tax law and the sharp market downturn at the end of 2018. The tax law change went into effect in 2018 and raised the standard deduction for individual and married filers. With fewer people itemizing their deductions, the article notes that individual giving saw a dip.
Whether this is a one-time occurrence or a long-term trend remains to be seen. Many of us in the office recently sat in on a presentation by Schwab Charitable that gave an in-depth overview of charitable giving in the U.S. I was surprised to learn that nearly 70% of all giving is done by individuals. It far surpassed both corporate and foundation giving (5% and 16%, respectively). While the dollar amounts given by corporations and foundations often exceed that of the average person, it’s clear that the lion’s share of giving is done by individuals.
While changes to the tax code may have eliminated the tax benefits for giving, there remains two great ways to give in a tax-efficient manner:
Donor Advised Funds (DAF) – individuals can transfer highly appreciated assets to a DAF and give those funds to a charity of their choosing. You receive a tax deduction equal to the fair market value and you can avoid paying any long-term capital gains. You can give non-cash assets such as real estate or collectibles to a DAF as well. The funds transferred to the DAF can be invested and grants can be given over several years.
Qualified Charitable Distributions – individuals who save in tax-deferred vehicles like a 401(k) or IRA must begin taking annual Required Minimum Distributions (RMD) at age 70 ½. You can elect to have a portion of your RMD sent directly to a non-profit organization. The portion that is given counts toward the RMD requirement but is not considered a taxable distribution. The IRS allows qualified charitable distributions up to $100,000 per year.
These two options are great planning opportunities for those who are charitably inclined and have assets and/or RMD funds available to give. Will individuals continue to give at high levels in in the future despite changes to the tax laws? My guess is, yes, they will.
If you would like to explore either of these charitable opportunities, please contact us to learn more.