Tax Time

It's that time of year again.  The time when most folks wish they had more charitable deductions.

Not surprisingly, year in and year out the United States ranks among the most charitable countries in the world when it comes to per-capita charitable giving.  The World Giving Index ranks each country's philanthropy based on various factors such volunteer hours worked, and % of the population giving, and per-capita giving.  In 2015, the United States ranked second in the world.  Myanmar, a small South East Asian country bordered by Bangladesh, India, China, Thailand and Laos, finished first.

According to philanthropyroundtable.org, US households give an average 3% of the adjustable gross income to charity.  Broken down by state, in 2015 Mississippi proudly ranked second on the list by donating roughly 5% to charity (Utah ranked a first, New Hampshire ranked last at 1.7%).  The south-eastern US was well represented with Alabama, Tennessee, Georgia and South Carolina following Mississippi on the list.   Closer to home, the surroundings counties in Southeast Mississippi gave nearly 6% to charity; double the national average.  Our small area is home to some of the most generous people in the country.

History of Tax Deduction

This year marks the 100-year anniversary of the charitable contribution deduction.  The US first began offering tax deductions for charitable contributions under the War Revenue Act of 1917.  The charitable tax deduction was thought to be the best way to offer incentive for wealthy donors to continue making contributions to institutions of higher education.  The top tax rate in 1917 was 67%, which made the deduction quite valuable.

For 2015, TIME magazine reported that US donations totaled $265 billion to charitable causes.  Roughly 40% of donations go toward religious causes, 20% towards education, and the remains 40% is spread over health, human services, arts, nature, etc.

Gifting Strategy

One charitable gifting strategy gaining momentum in recent years is the use of Community Foundations.  Accredited Community Foundations are non-profit entities that allow donors the ability to set up endowments to fund causes they are passionate about.

Unlike typical donations, in which the money is immediately spent by the charity, endowments are designed to be ongoing entities that offer the donor a chance to leave a legacy that lasts an indefinite period of time.   With endowments, donor contributions are invested for future growth and only a portion of the funds are paid out each year to fund the donor’s selected cause.    

In years past, private endowments were only available to the super wealthy, but Community Foundations have made the strategy available to the general public with much lower minimums that vary based the specific foundations.  Community Foundations generally also accept appreciated stocks in addition to general cash donations to fund the initial deposit.     

Please let me know if you’re interested in learning more about charitable gifting strategies.