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 need to learn more about charitable giving and philanthropy, such as how these organizations distribute their funds and the rules governing their activities.
Giving money to charity can provide personal and financial benefits to donors and be part of their legacy. If you are thinking about making a charitable gift—either now or when you pass away, there are things to be aware of so you can make the most of your donation.
According to a report by Giving USA 2023, total charitable giving in the United States dropped 10.5 percent from 2021 to 2022. 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 believed the wealthy should contribute more. Others said they could not afford to contribute.3
Some statistics paint a rosier picture of American generosity. Adjusting for inflation, charitable giving by Americans was seven times greater in 2016 than in 1954. US charitable giving as a proportion of GDP has 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 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 those giving rising proportionately to 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. The Internal Revenue Service (IRS) generally defines 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 sources.7
Designated 501(c)(3) charities can also solicit tax-deductible contributions that allow donors to deduct money from these organizations on their tax returns. A gift made to a qualified tax-exempt organization as part of an estate plan can also help reduce estate taxes.
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
Donating can be motivated by altruism, financial considerations, or a little of both. These donations contain tangible personal property, accounts, and real estate. A donor can even leave 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 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 (i.e., directly to a charity or a private foundation or using other strategies, such as a donor-advised fund). Appreciated securities may bypass the capital gains tax if 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, 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 receive, donors who plan to make a large charitable gift during their lifetime or death should temper their generosity with caution. Here are things to look out for:
It is not too late to make philanthropy a part of your legacy. Whether you are new to charitable giving or want to step up your gifts, there are strategies to follow that can increase the value of your charitable efforts.
However, you plan to give and to whom you plan to give, the rules around charities can be complicated, and options abound. Schedule a consultation with our estate planning attorneys for professional advice about giving to charities, choosing what and where to donate, and the different gifting strategies that are available.
The end of the year, also called Giving Season, and this December’s Giving Tuesday are significant drivers of charitable donations in the U.S. This practice dates back many years and has notable financial benefits.
