The Future of Nonprofit Giving
Posted on Wednesday, November 24, 2021
ShareWhat is the future of nonprofit giving?
Giving USA issues an annual report on philanthropy providing information on who is giving to charitable organizations, as well as the type of charitable organizations. The following is a summary according to the Giving USA 2021: The Annual Report on Philanthropy for the Year 2020 released in June 2021.
- Total charitable giving increased 3.8% in 2020 from 2019
- 2020 was the highest year of charitable giving on record with individuals, bequests, foundations, and corporations giving an estimated $471.44 billion to U.S. charities.
- Giving by individuals totaled an estimated $324.10 billion, an increase of 1.0% (adjusted for inflation).
- Giving by foundations totaled an estimated $88.55 billion, an increase of 15.6% (adjusted for inflation).
- Giving by bequest totaled an estimated $41.19 billion, an increase of 9.0% (adjusted for inflation).
- Giving by corporations totaled an estimated $16.88 billion, a decrease of 7.3% (adjusted for inflation).
So what will 2021 giving look like? What causes these changes from year to year? The economy, the volatility of the stock market, changes in tax laws, and the current events of the world all influence giving. Specifically in recent times the uncertainty of the pandemic has had a major impact on giving as well as the increase in the need for nonprofit services. When trying to predict the future of giving, here are just a few indicators to consider.
A Downturn in the Economy
During a downturn in the economy, individuals and businesses are likely making less income and therefore feel that they have less to money to donate. Indivduals may be out of work, businesses are forced to make cutbacks, and less money is available for spending. Foundations also earn less income on their investments, which in turn decreases the amount of grants paid out. Unfortunately, this is also the time when the demand for many nonprofit services increases.
Private Foundation Distribution Requirements
In general, private non-operating foundations are required to make charitable distributions annually of at least 5% of the total market value of its assets from the previous year. Since most private foundations assets are investments, the value of these assets will vary with the stock market. An increase in the stock market will increase the fair value of a foundation’s investment portfolio and increase the required distribution for the following year while a decrease in the stock market will result in less distributions.
Changes in Tax Laws for Individuals
With the changes in the tax laws over the past few years, fewer taxpayers have been able to itemize and take a charitable deduction for contributions made to nonprofits on their tax returns. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted in December 2020, extends a new charitable tax benefit through the end of 2021. With this law, individuals that do not itemize can claim a deduction of up to $300 ($600 for married filing jointly) for cash contributions made to qualifying charities during 2021. This may provide an incentive for those individuals that cannot itemize to give to nonprofits during 2021.
Individual Investment Growth
The value of investments held by individuals may grow over time if the stocks have been held for a long period of time. Selling the stocks results in a capital gain tax for the individual but if the individual donates the stock to a nonprofit, they can avoid paying the capital gains tax and if they itemize, also get a charitable deduction for the fair market value of the stock. Increases in the stock market may result in more donated stocks to nonprofits.
Possible Changes to Donor Advised Funds
The Accelerating Charitable Efforts (ACE) Act was introduced in June 2021 but has not passed yet. Currently donors can make contributions to a donor advised fund (DAF) and receive a charitable deduction on their income tax return. Also, there are not any rules for when the funds are distributed from the DAF to charitable organizations. The ACE Act’s purpose is to ensure that DAFs make resources available to charities within a reasonable period of time. A few of the highlights of the Act include establishing a category of donor advised funds called qualified DAFs (QDAFs) that would impose a 15-year limitation on the donor’s advisory privileges, measured from the contribution date. The QDAFs would also require that a charitable beneficiary be designated to receive any undistributed assets at the end of 15 years with a penalty tax of 50% of the undistributed funds on those that do not pay out within 15 years. The Act would also create another category of donor advised funds called nonqualified DAFs (NQDAFs) that would have no income tax deduction for contributions until the NQDAF makes the qualifying distribution to another charitable organization. NQDAFs would have a 50% excise tax on any contributions not distributed within 50 years. A third category of DAFs, qualified community foundation donor advised funds, would be geared towards donor advised funds sponsored by community foundations. These would limit the dollar amount over which any single donor can have advisory privileges while also requiring distributions of at least 5% of the assets each year. DAFs have been under scrutiny for may years. The ACE Act is trying to incentivize donors to pass the funds onto the nonprofits faster.
What You Can Do
Although you cannot control or even predict the circumstances that lead to an increase or decrease in donor giving, as a nonprofit there are some things that you can do.
- Monitor your revenue sources. Make sure you are not relying on a single donor or source of revenue. What would you do if you suddenly lost that revenue? Would you be able to survive? Develop a plan to diversify your funding if it is not already.
- Continue to tell your story. Make sure donors and the public know all of the good things that you are doing with their donations. Share real-life stories of impact using real people. Thank them for their support to allow you to continue your mission during uncertain times.
Contributed by: Carrie Minnich, MAcct, CPA | Director | DWD CPAs & Advisors
Posted in Mission Minded Nonprofits
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.