Capital InsightsTaxes

What’s New in Charitable Giving?

For non-profit organizations and charitable foundations, the beginning of the Fall season is eagerly anticipated each year; and it’s not because of the pumpkin spiced lattes. The colder weather means “giving season” is right around the corner, which is the period that most non-profits receive the bulk of their annual donations.

Giving Season Kicks Into High Gear

According to the Nonprofits Source, roughly 30% of annual giving occurs in December, with about 10% of the annual giving total occurring during the last three days of the year. Furthermore, nonprofits on average will receive 47% of their online donations in the last week of December, with 20% coming in on the final day of the year.

In 2022, Americans gave a reported $499.33 billion to charity, with the largest portion (64% or $319.04 billion) coming from individual donors. Last year’s total was down 3.4% from a record year in 2021, which has largely been attributed to higher inflation. The average one-time gift was $121 (up from $115) and monthly gifts were $25 (up from $24). However, those numbers were probably aided by the fact that the number of new donors dropped by 18.1%. For many smaller non-profits that rely on donations to fund their daily work, the lower level of gifting was especially difficult, as they too were dealing with rising costs and a higher interest rate environment.

It’s natural to assume that many people wait until year-end to do charitable giving because they have a more complete tax picture at that time and are looking for additional tax deductions. However, according to CCS Fundraising’s annual 2023 Philanthropic Landscape report, only 56% of donors see tax deductions as a motivator and 97% of donors cite the impact of their gift as their main reason for giving. Furthermore, roughly 38% of online donors who make a gift in one year contribute to that nonprofit again the following year.

Donor-Advised Funds Are Hotter Than Ever

Another change that has had a larger effect on charities in recent years is the growing adoption of donor-advised funds (DAFs) and other charitable fund vehicles that allow donors to bunch multiple years of gifting into one tax year and then distribute the funds to the organizations at their discretion. For 2021, the National Philanthropic Trust reported that contributions to DAFs totaled $72.67 billion, an all-time high and a 46.6% year-over-year increase. However, that doesn’t benefit the charitable organizations immediately. DAF grants to charities saw a sizeable increase to a record high of 45.74 billion in 2021, but that means a net of roughly $26.93 billion was retained in DAF accounts.

This isn’t necessarily a bad thing, as the additional assets retained in DAF accounts will continue to grow, assuming they’re invested, which will result in a larger overall pool for charitable purposes. It just lowers the cash flow that charities have access to now, which could potentially limit the work they’re able to do or require them to seek other funding methods (i.e., loans). Classy.org, a non-profit giving platform, reports that “a mature monthly recurring donation program can also help an organization improve its long-range planning and decision-making” as “revenue from recurring donations is far more predictable than revenue from one-off gifts.”

Exploring Consistent Contributions

The rapid advances in payment processing, mobile phone systems, and technology in general have helped non-profits make it easier for donors to give on a reoccurring basis. While the number of donors enrolled in recurring giving programs did increase to 57% in 2022, up from 46% the previous year, it still only accounts for 28% of all online giving. From the donors’ perspective, the more regular gifting can also strengthen their connection to that organization or community, as we’re more likely to quickly forget about things that only happen once a year.

If you are not currently implementing a monthly or periodic charitable giving plan, a good time to start thinking about your giving for the year would be when you file your taxes for the prior year. If working with an accountant, you can start the conversation of what level of charitable giving makes sense for your income and tax situation. From there, you can determine an estimated range of your total charitable giving for the year and start a periodic gifting plan so that you don’t have to do everything at year-end.

Employer-Driven Incentives to Give

If employed, you should also check with your employer to see if they have any programs for matching employee charitable gifts. According to Double the Donation, over 26 million people work for companies with matching gift programs, but over 78% of this group are unaware that their company offers them or know any program specifics. Everyone’s situation is different, but according to their survey, 84% of donors say they’re more likely to donate if a match is offered. As a result, they also estimate that $6-$10 billion in matching gift funds go unclaimed every year.

The holidays often come with plenty of other expenses and stresses, so why not relieve yourself of having to determine your charitable giving during that time and spend more time enjoying the season!

Please reach out to us if you have any questions, or if you would like to discuss your charitable giving strategy.

 

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