10/30/13 — Two Studies Underline Importance of Preserving Charitable Deduction

By The Charitable Giving Coalition

The Chronicle of Philanthropy’s annual Philanthropy 400 study reveals that many of the country’s biggest nonprofits are still struggling to compensate for fundraising losses they have been suffering since the start of the Great Recession. The survey, which includes the 400 American charities that raise the most money, found that for these charities, which together raise $1 of every $4, donations grew only 4% in the last year. Only half of the charities are raising more than in 2007, and estimates for 2013 are bleak, showing a 1% decrease.

For the more traditional charities that are dependent on a range of donations from Americans at all income levels, economic uncertainty is making it difficult to keep up. The number one charity in the survey, United Way Worldwide, has seen a drop of 16% in private donations since the recession began in 2007.

Organizations that create charitable funds are recovering better, as are those dependent upon the nation’s wealthiest donors — commitments of $1 million and more are twice what they were at the same time last year. However, 45% of the donors surveyed by U.S. Trust revealed that they would reduce their giving should the charitable tax deduction be eliminated.

The U.S. Trust study, which, in addition to donors, surveyed 300 financial advisors (including accountants, trust attorneys, and wealth advisors), found a disconnect between donors and their advisors when it came to conversations surrounding philanthropy. Notable is the fact that advisors tend to underestimate a client’s desire to discuss charitable goals and interests while overestimating the importance of tax benefits as a motivation for giving.

Donors’ top reasons for giving were being passionate about a cause, having a strong desire to give back, and having a positive impact on society and the world. A mere 10 percent of donors included tax incentives as a reason for giving.

But according to Mark Miller, C.P.A., quoted in The New York Times, even if not a strong motivation, the tax benefits of giving to charity can translate to bigger donations for nonprofits: 

“A lot of people donate to charities who can’t even itemize their deductions,” said Mark Miller, a certified public accountant at Sikich L.L.P. in Milwaukee.

But, he said, an adviser, if not the client, should be aware of tax savings since managing them can mean more money for a charity.

The findings of these two studies underline the urgent need to protect the charitable deduction, and emphasize purpose of the charitable deduction as a lifeline for the communities that charities serve, not a loophole for the wealthy. When philanthropists are able to use the deduction, nonprofits and the people who need them are the true beneficiaries.