In 2018, the United States reached an important milestone: the share of American households reporting donating to nonprofit organizations fell to 49.6%, falling below 50% for the first time, according to the report. Philanthropy panel study. In 2000, 66.6% of Americans reported donating to charity.

While the average donation amount among all Americans has declined over the past two decades, the increase in the percentage of donating households actually gives more (the “up dollars, down donors” effect). ).

In 1960, 9.8% of all donors made half of all donations; in 2012, half of total donations came from 1.8% of potential donors. This trend of fewer donors giving much more money is also accompanied by a decrease in volunteering. It appears that people who don’t volunteer to work with a charity are also much less likely to donate money to it. Volunteering has been in decline for several decades and is amplified among people with the lowest incomes.

However, charitable donations offer two major benefits to benefactors: they can help transfer wealth efficiently, and they can solidify a commitment to social responsibility.

Possible reasons for donor refusal (both money and time)

Many studies show a correlation between the Great Recession and donor decline, although the trend varies widely across regions and socioeconomic groups. Others point to the decline in religious affiliation and participation, as more Americans choose not to identify with organized religion, as well as a general social disconnect brought on by the pandemic. It’s also possible that charitable giving has declined due to the gradual passing away of the civic-minded “Greatest Generation.”

And then there’s tax policy: The Tax Cuts and Jobs Act of 2017 (TCJA), by increasing the standard deduction, actually decreased incentives to make charitable contributions. Nearly 70% of high-income households claiming charitable deductions before TCJA fell to 29% afterward.

Why are charitable donations important?

Think about the institutions, organizations, networks and associations that matter most to you and how they help make communities and our world more decent, more humane, healthier and more beautiful. Hospitals and health clinics, museums, colleges and universities, symphonies, theaters, animal shelters, PTAs, and public libraries are just a few of the institutions that rely on charitable donations to support their missions.

Additionally, America’s tradition of generosity has given us deep meaning and mutual support for centuries. This fills a gap that the U.S. government was neither designed nor equipped to fill.

Finally, charitable or philanthropic donations allow wealthy families to build an inheritance while meeting strategic tax planning objectives. Whether you have a net worth of $1 million or $100 million, you should consider charitable giving a cornerstone of your family’s financial plan. The use of trusts can expand the options for supporting a favorite charity through an inheritance and provide a tax-advantaged income stream for you and your heirs. However, trusts can be complicated to create and administer, so you should consider working with a tax professional, qualified financial advisor, or probate attorney in these cases.

Two relatively simple charitable giving options

• Donor-Advised Fund: If you want to donate to charity during your lifetime, a Donor Advised Fund (DAF) might be a good option.

A DAF allows you to give a large amount now, benefiting from the charitable deduction, but spread the donations over time. It is relatively simple to set up, with initial setup and low annual administration costs. Initial funding for a DAF account is modest, typically $5,000, and you are not required to make annual distributions. A DAF allows you to give to any IRS-recognized charity, typically a 501(c)(3) tax-exempt organization. There are no excise taxes and donations can be made anonymously. It’s important to note that for cash donations or donations of publicly traded securities, you are generally eligible for an income tax deduction of up to 60% of your adjusted gross income, or AGI. For non-exchange-traded assets or securities, you are entitled to a charitable deduction of fair market value up to 30% of AGI.

• Qualified charitable distributions of your RMD: A provision of the Internal Revenue Code allows individuals age 70 and older to transfer funds directly from an IRA to a charity without any adverse tax consequences through what is called a qualified charitable distribution (QCD). A QCD is a simple way to meet required minimum distribution obligations if you are at least 73 years old at the time of transfer. Under the provisions of a QCD, up to $100,000 ($200,000 for married couples) per year can be transferred directly from each qualified taxpayer’s IRA to the charity, provided they never touches you.

Certain rules and restrictions apply to QCDs. For example, you need a custodian to handle distributions and you can’t claim a deduction if you itemize your deductions. Not all charities can accept QCDs, such as DAFs or private foundations. Although you can use Roth IRAs for QCDs, there is no tax benefit because Roths are designed to provide tax-free income in the future.

On the other hand, a transfer is not treated as a taxable distribution subject to federal income tax. It can therefore allow you to effectively reduce your income for social security purposes. And new rules in the Federal SECURE 2.0 Retirement Act of 2022 improve QCD benefits in two ways. First, annual rollover limits are indexed to inflation starting in 2024, so you and your spouse may be able to contribute more to your favorite charity in the future. Second, you can include in your QCD a one-time gift of up to $50,000 to a shared interest entity such as a charitable remainder trust (CRT) or charitable gift annuity (CGA) (these amounts will also be indexed to inflation).

Incorporating charitable giving into your overall wealth plan requires careful consideration. Working with estate planning professionals and financial advisors can be very helpful when developing a charitable giving strategy that fits seamlessly into your wealth plan while contributing to the public good.