4 things to consider when planning for year-end charitable giving
While many believed the pandemic would hamper charitable giving, studies show this is not the case. In fact, overall charitable giving grew 3.8% in 2020. Individual giving led the way, accounting for 78% of total giving. Another study found that people directly affected by the pandemic were 9% more likely to donate to charity than others. This demographic also contributed 9.2% more dollars than those who were less personally affected by the pandemic.
With the end of the year fast approaching, I think we’ll end the year with even bigger giveaways than we saw in 2020. However, there are a few things to keep in mind. ‘Dec 31 is approaching with your charity. shots still in motion.
It’s the season to give
First of all, know that December is an important month for charities, and you are not alone if you haven’t donated yet. About 30% of annual giving takes place in December, with about 10% of all annual giving in the last three days of the year. My organization, for example, processes a quarter of its annual grant applications each year in December, and we, like many donor-advised funders, are seeing a further increase in applications during these December days.
It’s a logical statistic. People are more generous during the holidays; year-end donations are tax deductible, and let’s face it, life can be busy, and we tend to postpone some activities until a deadline approaches!
1. Start with a plan
Rather than launching yourself without a roadmap, we suggest that you first develop a strategic plan. Like most things in life, having a plan will usually get you on top. You might ask yourself, “How do I donate to charity while still making sure I get as many tax benefits as possible?” Do I know where and how I would like to donate? Ask yourself these questions and start a list of everything you would like to get out of the experience.
2. Take advantage of the special charitable tax deduction
Consider taking advantage of the special charitable tax deductions adopted as part of the COVID-19 relief program and carried over to 2021. One allows a full deduction in 2021 for donors donating to charities qualified up to 100% of their income (Note: There are certain limits to what defines a “qualifying charity.”) The other provision allows all taxpayers to deduct up to $ 300 for sole filers and $ 600 for joint filers for donations to qualifying charities on their 2021 federal income tax return, although they do not itemize their deductions.
As the IRS website explains, “Ordinarily, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions. The law now allows these individuals to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to certain qualifying charities. “
Unless Congress extends them, both provisions expire on January 1, 2022.
3. Consider how inflationary pressures affect charitable giving
It is not just your own portfolio that has been affected by inflation. While it has been a great year for charitable giving, the need to give has not abated, especially given the challenges of inflationary pressures.
Most Americans don’t need me to tell them that a dollar doesn’t go as far as it used to. They live it. The United States Bureau of Labor Statistics has previously reported that consumer prices were up 6.8% from the same period a year ago. This means that the rising cost of goods and services not only erodes the value of charitable giving, but consequently reduces what charities can do with the same level of income.
For organizations known to stretch a dollar, it will become much more difficult for them to maintain the same level of operations. For example, if food costs more, soup kitchens will not be able to feed the same number of people if budgets do not increase. This is one of the reasons why it is essential that donation levels continue to rise and that those who are able to give more.
4. Don’t neglect your donation strategy to meet a tax deadline
There is a well-known rule about groceries: don’t go to the store hungry, or you may be making impulsive (read “bad”) decisions. The same goes for your end of year donations. Yes, for tax reasons you may need to donate now, but that doesn’t mean you have to compromise on your strategy or make rushed decisions without thinking about what kind of charities you want to support. This is where a donation vehicle such as a Donor Advised Fund (DAF) can come in handy.
A DAF allows you to have charitable dollars ready to be donated to a deserving charity on your own schedule. With a CFO, you won’t have to rush to meet an end-of-year deadline. Instead, you’ll have the freedom to take your time to make thoughtful charitable contributions from your account.
DAFs are also one of the most tax-efficient ways to donate to a charity, while simplifying the donation process. Whichever donation vehicle you choose, be sure to take the time to determine if a CFO is right for you and a perfect fit with your overall charitable goals. There are nearly a thousand DAF suppliers in the United States. It won’t be difficult to find one that’s right for you.
Hopefully next year we return to 2021 with great pride in American charitable behavior. There are great needs, and there are many worthy nonprofits catering to them. Don’t let December go by without considering some mutually beneficial ways to make a difference now.
President, CEO, DonorsTrust
Lawson Bader has been President and CEO of DonorsTrust since 2015. He has 20 years of experience leading open market research and advocacy groups including the Competitive Enterprise Institute and the Mercatus Center. DonorsTrust is a community foundation that protects the intent of account holders who seek to promote charities that address civic concerns, are primarily privately funded, do not increase the size and reach of government, and encourage the free enterprise and personal responsibility.