Philanthropic Options: Making the most of your charitable giving

Philanthropy can be defined as "an altruistic act by an individual or organization to improve human welfare." For some, philanthropy means good works that help others or society, whether as a one-off gesture or part of legacy building. For others, such generosity provides vital tax breaks. And for many, it means both.

The goal here is to:

  • provide a short overview of philanthropy in the United States
  • explore some of the trends over the past few years
  • list some of the many ways you can give

Whether as a billionaire donating a large portion of one's wealth to charity or as an individual supporting a local food pantry, the most significant benefit to those giving and those receiving comes from making philanthropy part of a formal giving plan and following it.

Facts and Trends About Giving in the United States

Giving USA reports that $557.16 billion were given to national charities in 2023, roughly 67% by individuals,19% by foundations, 8% through trusts and wills, and 6% by corporations. The portion given by individuals represents nearly $375 billion.

The Urban Institute identifies four trends in charitable giving worth considering:

  • Individual cash donations are dropping both in the number of individual donors and the amount they give.
  • Donor-advised funds (DAFs) are growing in popularity and now exceed 10% of total giving.
  • Donating non-cash assets (such as securities, real estate or personal property) is increasing. Stocks predominate, possibly to reduce capital gains taxes on earnings as the market continues to perform well.
  • Crowdfunding and mutual aid – tools that spiked during the pandemic – have since receded but still represent 5% of giving.

The predominant sectors receiving donations (by volume donated and in order of declining percentages) include religion, human services, education, gifts to grant-making foundations, public-society benefits, and health. 

The percentage of individuals' disposable income given to 501(c)(3)s has remained at about 2% for half a century. Meanwhile, technology has introduced new opportunities to individuals, such as online crowdfunding and digital giving.

How Many Ways Can You Give?

There are countless philanthropic opportunities available to Americans that can help reduce their tax burden while contributing positively to society and building their legacy. Here are some ideas:

Cash donations. The simplest form of philanthropy is to make direct cash contributions to qualified charities. When itemized on tax returns, these are generally fully deductible up to 60% of adjusted gross income (AGI). The donated amount is deducted when filing taxes, thus lowering taxable income.

Non-cash contributions. A donor can receive a tax deduction based on the fair market value of items (such as securities, real estate or personal property) given to qualified organizations with appropriate documentation as proof of the contribution and its value.

Donor-Advised Funds (DAFs). DAFs provide flexibility in charitable giving, allowing individuals to make a charitable contribution, receive an immediate tax deduction and spread out the actual grants over time. Your fund grows tax-free until distributed to charities.

Qualified Charitable Distributions (QCDs). Although it doesn't qualify as a charitable deduction, making a QCD from an IRA directly to a charity can satisfy an annual Required Minimum Distribution (RMD) of someone aged 70½ or older without increasing taxable income.

Charitable Remainder Trusts (CRTs). CRTs can provide the donor (or other beneficiaries) with annual income for a specified period, after which the remainder will support a charity of the donor's choice. The benefits include a charitable deduction and, if set up with an appreciated stock, can avoid capital gains tax upon the stock's sale.

Charitable Lead Trusts (CLTs). In contrast with CRTs, CLTs can provide income to a charity for a set term, with the remainder going to non-charitable beneficiaries. CLTs can help reduce gift and estate taxes. For example, someone might create a CLT that funds an arts nonprofit for 10 years. When the trust ends, that person's grandchildren might receive the remaining assets with reduced estate taxes.

Estate gifts. By including charitable bequests in their will, a donor can reduce estate taxes while supporting causes important to their legacy.

Appreciated securities. Donating long-term appreciated stocks or mutual funds instead of cash can avoid capital gains taxes while claiming a deduction for the asset's full market value. For example, someone might donate stock worth $25,000 to an animal rescue organization. The benefit could be to avoid $5,000 in capital gains tax while deducting the stock's full market value.

Property donations. Significant tax deductions are possible by donating tangible property, like real estate or vehicles, based on the property's fair market value at the time of donation. For example, you might donate a vacation home to a charity, claim a deduction for the property's fair market value and avoid capital gains taxes.

Bunching contributions. Multiple years worth of donations may be made in one year to maximize itemized deductions – by surpassing the standard deduction, for example – and taking advantage of higher tax benefits in that year.

Crowdfunding donations. If contributions through crowdfunding platforms go to qualified organizations (such as to a 501(c)(3) nonprofit), contributions can support various causes while providing potential tax deductions.

Charitable gift annuities. A charitable gift annuity is a contract between a donor and a qualified charity. The donor makes a substantial gift to the charity (typically cash or appreciated assets). The donor (or other beneficiary) receives fixed annual payments for life from the charity. This vehicle offers immediate partial tax deductions and potential capital gains benefits if funded with appreciated assets.

Life insurance donations. A donor can transfer a life insurance policy ownership to a charity or purchase a new policy with the charity named as the beneficiary. The donor can deduct the policy's cash surrender value and any premiums they continue to pay while ensuring a meaningful legacy. When the charity receives the benefit, the gift is typically excluded from the donor's estate, potentially reducing estate taxes.

Scholarships and grants. A donor can receive immediate tax deductions while supporting students and educational institutions by funding educational scholarships or grants. For example, someone might fund an annual college scholarship to honor a late spouse, earning a tax deduction while helping deserving students fund their studies.

Supporting community foundations. Community foundations are public charities that manage and distribute funds for local needs, often as DAFs or grant-making programs. Donating to a community foundation can be directed toward a specific local initiative of the donor's choice while providing a tax deduction to the donor.

Tax credit programs. Many states offer tax credit programs for qualifying charitable contributions to local nonprofits, often linked to education, affordable housing or economic development. Unlike deductions, which reduce taxable income, tax credits directly reduce the amount of state taxes owed, potentially leading to significant savings.

Private foundations. Private foundations are independent legal entities established by individuals, families or corporations to support charitable activities. Establishing one can provide immediate and substantial tax deductions while allowing the donor to control how funds are distributed over time. The deduction limits are lower compared to public charities. Donated appreciated assets avoid capital gains taxes.

Employment-Related Philanthropic Opportunities 

Employers may offer philanthropic opportunities as part of the corporation's social responsibility program or as an additional employee benefit. Here are four such opportunities.

Employer matching gifts: Employers may match employee donations to eligible nonprofits, which can double or triple the impact of individual contributions and provide additional tax benefits.

Voluntary grants: Some employers offer programs to specified charities based on an employee's volunteer hours, converting volunteer time into financial support for nonprofits. An example might be someone who logs 200 volunteer hours at a food pantry and has an employer who donates $2,000 to that pantry, thus leveraging the impact of the employee's time and dedication.

Employee grant stipends: Employees may receive stipends from employers to donate to their chosen charity as part of the corporation's social responsibility program. The employer empowers employees to engage in philanthropy using company resources while benefiting from tax deductions.

Corporate philanthropy programs: Employees may be able to donate through payroll deductions or company-sponsored events (often with matching contributions) when employers have such philanthropic initiatives.

As mentioned before, philanthropic opportunities are virtually endless. At WH Cornerstone, we have extensive experience working with individuals and couples to define how you want to be remembered and what causes you want to support – as your "philanthropy advisors," if you will. 

More importantly, we can help you identify how to get the most significant impact from the funds you want to dedicate to such philanthropy – while also enjoying the most effective tax benefit. We call it "doing well while doing good." To explore all possibilities, schedule a call with us soon. We're here to help.