Economic conditions and potential tax changes could encourage even more generosity in 2016
SAN FRANCISCO--(BUSINESS WIRE)--Schwab CharitableTM, one of the largest national providers of donor-advised funds and other philanthropic services, reported an estimated 22% rise in the amount granted to charities so far this year. From January 1st through September 30th 2016, Schwab Charitable account holders recommended approximately 145,000 grants totaling $830 million compared with 129,000 grants totaling $670 million in the same period last year. This is a promising sign that individual giving may be headed for another record year in 2016.
Last year, Americans gave more to charity than ever before. In 2015, charitable giving rose to $373 billion in the United States, driven by an almost $10 billion increase in gifts from individuals which represent over 70% of total giving. Even more encouraging, the growth in charitable donations has outpaced the growth in the economy for the past five years.1
Four factors are contributing to strong interest in charitable giving again this year.
First, a solid economy and robust stock market have created appreciated assets that can be donated to charity to offset higher tax bills.
In the past five years, the S&P 500 stock market index has almost doubled2 and the number of millionaires has increased more than 40%.3 While many investors are experiencing healthy gains in their investment portfolios, they may also be facing the prospect of correspondingly higher taxes. In addition, some have seen increases in the value of their privately held businesses and real estate holdings.
Appreciated assets can often be donated to charity to help offset these higher income and capital gains taxes. Donors who give appreciated assets that have been held for more than one year directly to public charities (including donor-advised funds) can generally claim the full, fair market value as a charitable contribution and will not owe capital gains tax on the sale of the assets. This can result in donors having up to 20% more to give to charity than if they sold the asset first and then donated the cash proceeds. Comprehensive information about the benefits of donating appreciated investments and assets is available online.
Second, the value of the charitable tax deduction remains substantial for high income earners.
Most high income earners experienced an increase in both their income tax and capital gains tax rates in 2013, which has made the value of charitable and other itemized deductions worth more. The top federal marginal tax rate for high income earners is currently 39.6% and the top rate on capital gains and qualified dividends is 20%. Tax legislation from the next administration and Congress could potentially increase these rates even further.
Third, the IRA Charitable Rollover is permanent.
The individual retirement account (IRA) charitable rollover has been a popular tax-law provision and was made permanent by legislation late last year. It allows people who are 70½ or older to transfer as much as $100,000 of their required minimum distribution each year directly from an IRA to qualified charities without being taxed on the distribution. Distributions must be made directly to the operating public charities (currently excludes donor-advised funds, supporting organizations and private foundations).
Fourth, future tax legislation could cap itemized deductions, lower the estate tax exemption or increase estate tax rates.
With a new president in office next year, the U.S. Congress is likely to act on proposals to raise tax revenues and simplify the tax code. The possibility of a reduction or cap on itemized deductions (which could include charitable deductions) for high income earners has been discussed as has lowering the estate tax exemption level and raising estate tax rates. In the past, this type of uncertainty led many to adopt a “bird in the hand” philosophy. Instead of waiting for Congress to act, donors may prefer to increase their charitable giving in 2016 and realize the existing, significant tax benefits while also proactively managing the size of their taxable estates.
Donor-advised funds like Schwab Charitable make charitable giving more efficient, convenient and tax smart, which helps donors increase the impact their philanthropy. 65% of Schwab Charitable donors say they give more than they otherwise would because they have a donor-advised fund account4, and more than 90% of contributions into Schwab Charitable accounts are fully distributed to charity within 10 years. More on how donor-advised funds help increase giving is available online.
About Schwab Charitable
Schwab Charitable is a donor-advised fund established as a service for individual investors to help increase their charitable giving. Since its inception in 1999, Schwab Charitable has facilitated over $6 billion in grants to approximately 104,000 charities on behalf of its donors. Schwab Charitable serves a wide range of investors and has been a pioneer in enabling registered investment advisors to manage the investments of donor-advised fund accounts5. Schwab Charitable also offers a private foundation conversion service for private foundations considering a donor-advised fund as a complementary or alternative charitable vehicle. For more information, including a short video describing the benefits of donor-advised funds, visit schwabcharitable.org.
1. Giving USA: The Annual Report on Philanthropy, 2016.
2. Based on daily closing prices for the S&P 500 Index from October 8, 2009 to October 14, 2016
3. Boston Consulting Group, 2016
4. According to a 2015 survey of donors
5. Professionally-managed accounts are available only through independent investment advisors working with Schwab Advisor ServicesTM, a business segment of The Charles Schwab Corporation serving independent investment advisors and including the custody, trading and support services of Charles Schwab & Co., Inc. Although donors may recommend an advisor, Schwab Charitable must approve the recommendation. Advisors must meet certain eligibility requirements and adhere to fee and investment guidelines. You may request a copy of the investment guidelines by calling (800) 746-6216.
A donor's ability to claim itemized deductions may be subject to further limitations depending upon the donor's specific tax situation and donors should consult their tax advisors. Schwab Charitable does not provide specific individualized legal or tax advice. Please consult a qualified legal or tax advisor where such advice is necessary or appropriate.
Schwab Charitable Fund is recognized as a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of the Internal Revenue Code. Contributions made to Schwab Charitable Fund are considered an irrevocable gift and are not refundable. Please be aware that Schwab Charitable has exclusive legal control over the assets you have contributed. Although every effort has been made to ensure that the information provided is correct, Schwab Charitable cannot guarantee its accuracy. This information is not provided to the IRS.
Contributions of some non-publicly traded assets are sometimes accepted via a charitable intermediary, with proceeds of the donation transferred to the donor-advised account upon liquidation.
Schwab Charitable is the name used for the combined programs and services of Schwab Charitable Fund, an independent nonprofit organization, which has entered into service agreements with certain affiliates of The Charles Schwab Corporation.
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