We are fast approaching the end of the year, when a lot of us will make a charitable gift. In the news, we had “Giving Tuesday,” and Tech Billionaire Michael Dell and his wife recently pledged a massive $6.25 billion to fund Trump Accounts for millions of American children.
Compared to residents of other wealthy nations, Americans are more likely to give their time and money to help others. In 2023, the United States ranked ninth in per capita gross domestic product (GDP) but fifth on the World Giving Index rankings.1
Polling shows that Americans trust nonprofits more than government or business. Still, they generally know little about charitable giving and philanthropy, such as how these organizations distribute their funds and the rules that govern their activities.
Giving money to charity can provide personal and financial benefits to donors and be a part of the legacy they leave behind. If you are considering making a charitable gift, either now or at your passing, there are things to remember to make the most of your donation.
Total charitable giving in the United States dropped 10.5 percent from 2021 to 2022, according to the 2023 Giving USA report. As a percentage of disposable personal income, giving declined to a 40-year low of 1.7 percent.2 Overall, the number of US households that annually give to charity declined from 66 percent in 2000 to less than 50 percent in 2018.
Nearly half of Americans who stopped giving to charity in the last five years told the Better Business Bureau they did so because they believe the wealthy are not paying their fair share. Others said they could not afford to contribute to charity.3
Some statistics paint a rosier picture of American generosity. Adjusting for inflation, charitable giving by Americans was 7 times greater in 2016 than in 1954. US charitable giving as a proportion of GDP has also increased slightly over this period, but has remained at around 2 percent for decades.4
Americans grew more generous during the pandemic, with 2020 and 2021 donations both topping 2019 giving levels.5 A recent Gallup poll reveals that 81 percent of Americans donated money to charity over the past year, with the percentage of donors rising with household income.6 Around 90 percent of households making $100,000 or more give money to charity each year.
There are approximately 1.5 million charitable organizations in the United States. Generally, the Internal Revenue Service (IRS) defines a public charity as any organization that receives much of its income from public donations.
Many—but not all—charities qualify as tax-exempt under IRS rules. The 501(c)(3) tax exemption, also known as the charitable tax exemption, allows qualified organizations to avoid paying federal corporate and income taxes on most revenue.7
Designated 501(c)(3) charities can also solicit tax-deductible contributions that allow donors to deduct money given to these organizations on their tax returns. A gift made to a qualified tax-exempt organization as part of an estate plan can help to reduce estate taxes as well.
To meet tax-exempt IRS requirements, an organization must exclusively exist for one purpose:
Charities, foundations, and nonprofits can gain 501(c)(3) status if they satisfy IRS tax rules.8 These philanthropic entities can include private foundations, community foundations, corporate foundations, limited liability companies, donor-advised funds, and even crowdfunding campaigns.
The nation’s top 100 charities received more than $61 billion in private donations in 2023. They include Feeding America, United Way, St. Jude Children’s Hospital, Salvation Army, Habitat for Humanity, Goodwill, YMCA, and the Boys & Girls Clubs of America.9
The decision to make a charitable donation can be motivated by altruism, financial considerations, or a little of both. These donations can be accounts, tangible personal property, or real estate. A donor can even leave all their money and property to charity at their death.
A gift made during a donor’s lifetime can result in an income tax deduction, provided that the charity is an IRS tax-exempt organization. For cash contributions, eligible itemized deductions for charitable donations can be made up to a certain percentage of the donor’s gross income. Limits also apply to gifts of appreciated securities or property in a single year.
There may be further limits on charitable gifts depending on how they are given (e.g., directly to a charity or a private foundation, or through other strategies such as a donor-advised fund). Appreciated securities may additionally bypass the capital gains tax if they are given to a charity during a donor’s lifetime.
When charitable gifts are part of an estate plan and transferred to the charity upon the donor’s death, they can remove money and property from the donor’s taxable estate, thereby lowering the donor’s estate tax liability, if one exists. There is an unlimited charitable deduction for estate plan gifts to charities. Gifts of this type can take several forms, including charitable trusts, retirement accounts such as individual retirement accounts and 401(k)s, and gifts made via charitable foundations and donor-advised funds.10
While it may be better to give than to receive, donors who plan to make a significant charitable gift during their lifetime or at their death should exercise caution. Here are things to look out for:
It is not too late to make philanthropy a part of your legacy. Still, whether you are new to charitable giving or want to step up your giving, there are strategies you can follow to increase the value of your philanthropic efforts.
However, when you plan to give, and to whom you plan to give, the rules around charities can be complicated, and options abound. For professional advice on giving to charities, choosing what and where to donate, and the different gifting strategies available, please schedule a consultation with our estate planning attorneys. Call the attorneys at Altman & Associates at 301-468-3220 or via our website at altmanassociates.net.
