Charitable Giving

As fall quickly approaches, so do the seasons of giving thanks, giving gifts, and for many, giving back. In fact, according to the 2021 Charitable Giving Report by the Blackbaud Institute, a cloud software company serving the nonprofit and social good community, 37 percent of all charitable giving happens in October, November, and December. And, thanks to the widespread use of social media, crowdfunding—raising money from a large number of contributors—is becoming the easiest method of soliciting funds for charities and personal causes.

The report also determined that online giving has grown 42 percent over the past three years, with a 9 percent increase in 2021 alone. So, whether you’re inspired to donate by Giving Tuesday, a Facebook birthday fundraiser, a teacher’s Amazon wish list, or a neighborhood family’s GoFundMe page, the chance to donate is just a click away. But there is more you need to know before you click. When you plan to donate to any charitable organization, including via social media, do your research. Here, we answer common questions about this accessible method of giving.

 Is My Crowdfunding Donation Tax Deductible?

Many crowdfunding sites have a symbol or other indicator that the organization is a registered charity and, therefore, tax exempt and eligible to receive tax-deductible contributions. You can also go directly to the organization’s website to learn its tax status. In addition, the IRS has a tool called the Tax Exempt Organization Search (TEOS), which allows you to search any charity to determine whether it’s registered as a 501(c)(3) organization.

This search can also help you find out if the charity has had its tax-exempt status revoked, which can happen if it hasn’t filed the necessary paperwork for three consecutive years (among other reasons). Whether you write a check or donate through a Facebook fundraiser, a donation to a verified 501(c)(3) organization is tax deductible. Keep in mind that some charities, like religious organizations, aren’t required to have 501(c)(3) status, but donations to them are still tax deductible.

A donation to an individual, on the other hand, is not. You may feel compelled to give money to a family having trouble paying medical bills via GoFundMe, or to a good friend who launched a campaign to finance a new product via Kickstarter. While those are likely helpful and much-needed donations, they’re not tax deductible for the donor.

If you’re itemizing deductions on your tax return rather than taking the standard deduction, be sure to keep receipts and detailed records of your donations. Check with your financial advisor for guidance on how to maximize your tax savings.

How Can I Tell If a Request for Donations Is Legitimate?

While it’s fairly easy to visit the IRS search tool or a charitable organization’s website to research its tax status and government filings, individual or private recipients aren’t as easily vetted. Unless you personally know the recipient or can somehow verify their need, it’s wise to keep your giving to causes you trust. Of course, social networks do enable you to vet friends of friends, or view posts and comments that will help you to judge whether a cause is legitimate.

You can also look to the specific crowdfunding site to see if an organization does its own vetting. GoFundMe, for example, has a one-year guarantee wherein you can submit a claim through the site if you think you’ve contributed to a fraudulent fundraiser within that period. If its experts determine your donation went to an illegitimate cause (note: this determination is at the discretion of the site), you will be refunded in full.

 What Percentage of Donations Actually Supports the Cause?

This varies from site to site, and it’s worthwhile for you to do some digging to make sure your gift has the largest impact. GoFundMe, for example, deducts a transaction fee of 2.9 percent plus $0.30 per donation. Facebook doesn’t charge transaction fees for donations to charitable organizations, but does deduct a 2.6 percent plus $0.30 processing fee for donations to personal causes.

Check the details on the specific platform you’re planning to use to help you determine whether it makes sense to donate through that site or another way. The charity website will also likely have a transaction fee to cover processing, but if you’re skeptical that your funding will actually reach the intended organization, donating directly instead of through social media may be your safest bet.

 Is Donating Through Social Media Instead of the Organization Beneficial?

Donating with just the click of a mouse and the use of a credit card is the biggest benefit to this type of charitable giving. It also allows supporters to easily share fundraisers so they can inspire friends, family, and followers to donate to them as well. More than $6 billion has been raised globally through Facebook and Instagram for various causes—the reach is clearly wide. But, in terms of financial benefit to the giver, there is no significant difference between donating directly or donating via crowdfunding.

So, as fall approaches and you feel compelled to share your good fortune with those who are less fortunate, click the “donate” button to your heart’s content. Just remember to vet the site and the cause—and feel free to check with your financial advisor—before you do.

These tools/hyperlinks are being provided as a courtesy and are for informational purposes only. We make no representation as to the completeness or accuracy of information provided at these websites.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

© 2022 Commonwealth Financial Network^®

By Sarah Ruef-Lindquist, JD, CTFA
Originally submitted to Penobscot Bay Pilot 

In 2020, a record amount of more than $471 billion was given to charity according to Giving USA, a report produced by the Giving USA Foundation in collaboration with the Lily Family School of Philanthropy at Indiana University.

The issues raised in a global pandemic, challenges to a civil society and the rule of law, climate change and record stock market value levels are believed to have contributed to this record level of giving.

In the month of June, GivingUSA produces an annual report on the prior calendar year’s giving. The report on 2021 giving was recently published and reported a record amount of $484.85 Billion in giving to charity for 2021. The same issues may have been a factor, and the overall distribution of the source of those gifts remains fairly stable: 67% of those gifts were from individuals, 9% from bequests (deceased individuals), 19% from foundations, and 4% from corporate philanthropy.

Giving growing, donor advised funds gifts included. One of the interesting observations looking historically since before the Great Recession from 2006 through 2019 pointed to growth in all charitable giving of 52% and an increase of 330% in giving through donor-advised funds, which as of 2021 represented 6% of charitable giving overall. Donor advised funds are an alternative to creating a private foundation. Donors make a contribution to an organization like a community foundation or other sponsoring charity (think Fidelity Charitable), and then advise the organization as to the grants to charities they would like the fund to make. Their relative simplicity and lower administrative cost along with favorable tax treatment make them an attractive alternative to creating foundations.

Another observation about 2021 giving is the growth of 22.8% to environmental and animal protection organizations during the pandemic years. The only area seeing a decrease in giving in 2021 was education, which was down almost 3% over 2020 giving.

Bequest giving growth outpaces giving overall. Bequest gifts grew over 5 years by almost 6%, whereas overall giving growth was just over 4% during the same time period. This could represent a part of the unprecedented transfer of wealth from the boomer generation (those born between 1944 and 1964), recently estimated to be as much as $30 trillion.

Another Forbes article highlights positive giving trends through Fidelity’s Charitable Gift Funds: “Last year (2021), Fidelity Charitable donors recommended $10.3 billion in grants to their favorite charities—which is 13% more than in 2020 and a 41% increase over pre-pandemic levels!”

This is all good news for charitable organizations, reflecting generosity and willingness to share wealth to support the work of non-profits in many areas of society. It also reminds fundraisers of how important it can be to pay attention to the methods of giving that are growing the fastest, like planned gifts through estates and tax-efficient, relatively simple donor-advised funds.

By Sarah Ruef-Lindquist,  JD, CTFA

We still have a few months to wait before GivingUSA releases its report on charitable giving for 2021. That usually happens in mid-June.  Anecdotally, many organizations are reporting that despite the significant continuing challenges of the pandemic for their operations and fundraising efforts, 2021 was actually a great year.

After record-breaking 2020 charitable giving statistics were reported in 2021, Fidelity reported as of last fall what they were learning and expected about giving trends in 2021.  They reported 9 out of 10 surveyed in the summer of 2021 indicated they planned to give as much or more than they had given to charity in 2020.

The report is based on a study conducted in July and August 2021 by Artemis Strategy Group, an independent research firm, on behalf of Fidelity Charitable. The study examined the effect of COVID-19 on giving behavior among 701 adults in the U.S. who donated at least $1,000 to charity in 2020.

You may recall, GivingUSA had reported a record $471 billion in 2020, representing a more than 5% increase over 2019 giving.

In November 2021, AFPGlobal.org reported that giving was on pace in the first half of 2021 compared to the same period in 2020. Through the work of the Fundraising Effectiveness Project, the report includes an increase in new donors as well as an increase in total gifts. “The estimated number of donors increased by 0.7% in the first half of 2021 compared to the same period in 2020, while the total amount of money given has risen by a projected 1.7%.”

A growth trend in giving would seem to be continuing in 2022.

In an article dated February 15, 2022, the Chronicle of Philanthropy reported a 9% increase in giving for 2022 over 2021. This would represent the largest increase in giving since 2012. The report was produced by Blackbaud Institute, a division of Blackbaud, and surveyed roughly 9000 charitable organizations.

Did your organization have a good fundraising year in 2021? We hope so. And we hope 2022 is full of success, too. And to the extent you are having success raising funds for the long-term, through current gifts to endowment or deferred giving, we’d like to know and offer our services tailored to non-profits to support your board’s fiduciary role stewarding those gifts. Learn more at AllenIF.com.

December is the “giving season,” when many people consider using their wealth to help others. Because of the urgent need for generosity presented by the COVID-19 pandemic, you may be looking for ways to stretch your charitable donations. As always, the use of tax-efficient giving strategies can help them go further.

This year, it’s also important to be aware of the tax incentives for philanthropy included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The summary below explains how you can maximize these tax-efficient giving incentives during the final weeks of 2020. Two common vehicles for charitable planning—now and in the future—are also covered.

CARES Act Tax Incentives
These incentives, which are set to expire on December 31, 2020, apply only to cash gifts to public charities made by individuals or corporations. Regarding your 2020 tax return, here’s what you need to know:

Are you taking the standard deduction? If you’re not itemizing, you can take an “above-the-line” deduction of up to $300 for cash gifts to charities. The amount you claim will reduce your adjusted gross income (AGI). What about married couples filing jointly? As of this writing, your deduction also seems to be limited to $300, according to IRS draft instructions.

Are you itemizing deductions? Typically, annual charitable deductions are capped at a percentage of a taxpayer’s AGI. For individuals, this cap has been set at 60 percent since 2017. Under the CARES Act, however, you may deduct up to 100 percent of your AGI for gifts of cash to a public charity in 2020. This rule excludes gifts to a donor-advised fund (DAF). For corporations, the AGI cap for cash gifts, previously set at 10 percent, has been raised to 25 percent for the year.

• For both individuals and corporations, any unused deduction under this cap may be carried forward for five years, which can lead to the planning opportunities discussed below. The cap for gifts of appreciated assets has not changed.

Planning Opportunities

If you wish to fund large charitable gifts this year, the 100 percent AGI cap offers huge advantages. Here are several ways this incentive could help you manage high-income events:

• Stock options and lump-sum payouts. If you’ve exercised nonqualified stock options from your employer out of concern for market volatility or received a large lump-sum severance package as a result of a layoff, charitable gifts can help offset the tax burden.
• Roth conversions. If you’d like to make a large Roth conversion this year, you could also make a large charitable gift to offset the tax liability of the conversion. This strategy is especially beneficial because traditional IRAs have become a less attractive way to leave money to heirs since the 2019 passage of the SECURE Act, which requires most IRA beneficiaries to empty their inherited IRA within 10 years.
• Business sale. Let’s say you have an expected AGI of $1 million this year due to a business sale. You could make a charitable contribution that would completely offset the year’s income.
• Combining gifts. Although the CARES Act incentive applies only to cash gifts, the IRS does permit taxpayers to combine different types of gifts. For instance, you could maximize your 30 percent AGI cap for gifts of appreciated assets. The 100 percent AGI cap would be reduced by that amount, but you would still be able to deduct another 70 percent of your AGI by making cash gifts.

Qualified Charitable Distributions (QCDs)

A QCD is a direct transfer of funds from an IRA, payable to a qualified charity. Although the CARES Act allows IRA owners to skip required minimum distributions (RMDs) in 2020, the rules for QCDs have not changed. If you own an IRA (including an inherited IRA) and are 70½ or older, you can make tax-free distributions of up to $100,000 payable to public charities (excluding DAFs).

Here are some ways a QCD could help control your income:

• If you decide to take an RMD this year (or must do so in the future), a QCD could be used to satisfy the distribution. This strategy would remove the tax burden associated with taking the distribution as ordinary income.
• A QCD is not reportable as part of your AGI, which limits its impact on the taxation of social security benefits.
• In future years, a QCD could also limit the impact of income on Medicare premiums, which are based on your AGI from two years prior.

Charitable Remainder Trusts (CRTs)

A CRT can help you (or your beneficiary) spread the tax liability on the sale of appreciated assets over many years. This may result in paying a lower overall effective tax rate. Let’s look at how this works:

• A CRT pays an income stream to a noncharitable beneficiary (or beneficiaries) for a term of years or for life. At the end of the income term, the remaining assets in the trust are distributed to a charity.
• When you move assets into a CRT, you receive a charitable contribution deduction based on the present value of the remainder interest set to pass to the charity at the end of the income distribution term.
• If you contribute appreciated assets (e.g., investment assets, closely held business interests, real estate, or collectibles), those assets can be sold without creating a tax liability to the trust itself.

As you can see, the primary benefit of a CRT is that the trust is exempt from taxes. But that does not mean taxes are entirely avoided for beneficiaries. In fact, the distributions to the income beneficiaries are taxable based on four buckets of income: ordinary income, capital gains, tax-free income, and return of principal. Each year, when the CRT makes its income distribution, it first pulls the funds available from accumulated ordinary income, such as interest and dividends, before distributing other types of income. The beneficiaries would be subject to the taxation rules in place for these types of income.

Need Additional Information?

If you’re interested in exploring these options, please contact me. We’ll talk through how these giving strategies can help you meet today’s urgent need for generosity—and further your visions for doing good.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.