In 2013, for the first time in U.S. history, charitable giving exceeded $400 billion. The Atlas of Giving, an independent philanthropy forecast service, recently released its 2013 report of charitable giving. Last year, 2013, charitable giving reached $416.6 billion. This is up from the previous high of $368.8 billon given in 2012.
Many thought 2012 would be an anomaly, individuals trying to take advantage of estate tax laws before they expired (of course, with the adoption of the American Tax Relief act of 2012, most estate tax laws did not expire, but rather became permanent). The 13% increase in charitable giving in 2013 proves that Americans are still giving more than ever.
The significant jump in charitable giving may be tied to the continued rise in the stock market in 2013, allowing taxpayers to remove appreciated assets without being subject to income tax. Taxpayers with appreciated investment assets may want to consider further contributions to charity in 2014 and beyond, because of the 3.8% net investment income tax (the so-called Medicare Tax). The 3.8% net investment income tax is imposed on net investment income over certain thresholds. For married filing jointly taxpayers this threshold is $250,000. For single taxpayers, it is $200,000, and for trusts and estates, the amount is $11,950. Removing net investment income from annual income will reduce the tax. One of the ways this can be done is through charitable giving. Taxpayers may donate appreciated stock directly to a charity. The taxpayer will be given both a charitable deduction, directly reducing their modified adjusted gross income and they will have removed the appreciated asset without being responsible for the additional 3.8% tax.
In addition to giving assets directly to charities, individuals have many other options, such as donor advised funds, where the donor contributes to the fund, but the assets are not all distributed in one year. Rather, the assets may be invested and depending on the fund, the donor directs how some or all of the fund assets are distributed to charitable organizations on an annual basis. Donor advised funds allow for donor direction, without some of the expenses associated with a private foundation.
Individuals may contribute to private foundations, donor advised funds or directly to charities with estate planning techniques, such as charitable remainder trusts and charitable lead trusts. Depending on how the gift is structured the 3.8% net investment income tax may be reduced or eliminated.
This article looks at the report more closely. It’s nice to see that charitable giving continues to grow, even though 2012 is over.