Many taxpayers and nonprofit organizations entered the 2018 tax year unsure of how the provisions of the Tax Cuts and Jobs Act would ultimately affect their charitable giving. Overall, 2018 was a complex yet remarkable year of giving across the United States, with Americans donating an estimated $427.71 billion to charities.1 However, deeper analysis of 2018 giving brings to light trends that will shape the philanthropic landscape for many years to come.
The Giving USA 2019 Annual Report published by the Giving USA Foundation, researched and written by the Indiana University Lilly Family School of Philanthropy at IUPUI, provides a comprehensive review of the nonprofit landscape and philanthropy in 2018. The report established several prominent trends in giving last year:
2018 Trends Analysis
The data published in the Giving USA 2019 Annual Report appears to indicate a declining trend in individual and workplace giving but growth in foundation grant making and corporate contributions upon review of both nominal and numbers adjusted for inflation. But are these trends a result of the Tax Cuts and Jobs Act or is this simply an expansion of what has really been going on in the giving landscape for years? Multi-year data comparisons indicate that individual giving has been slowly but steadily declining over the past 10 years, with 2018 marking the first time since 1954 that individual giving as a percentage of total giving has fallen below 70%.1 Foundation grant making, on the other hand, shows growth that is five times the rate of household giving, with an upward trajectory when comparing the past few years of data.1 This information appears to coincide with consensus that there is a widening disparity in the income gap between Americans. Charities are seeing fewer donations from low- and moderate-income supporters and increasing donations from higher-wealth individuals. Trends in 2018 confirm that nonprofit organizations are relying less heavily on the average American household to support their mission and are instead seeking out larger, single donors to provide grants, event funding and sponsorships.1, 2, 4
The 2018 tax year was wrought with conflicting economic indicators as well as changes and uncertainty surrounding policy. Both GDP and disposable personal income grew by 5% or more in 2018 to bolster giving, while a relatively volatile stock market at the end of 2018 decreased giving and tightened purse strings.1, 2 Uncertain trade policies and international tension coupled with changes to the federal tax system mandated by the Tax Cuts and Jobs Act likely nixed the success of many familiar December giving campaigns to entice last minute donors with an itemized tax deduction. The result of the economic volatility? A 2018 that just kind of “held steady” with regard to philanthropy.
Other trends in giving appear to reflect changing values and social norms. When reviewing the largest sub-sectors of giving (religion and education), we’re seeing an overall decline in the giving to these types of organizations and an increase in giving to smaller nonprofits that seek to assist with animal welfare, human rights and international policy.1, 2 Does this shift in giving reflect changes in overall societal norms or are we seeing a slow shift in the underlying donor base from baby boomers to gen Xers and millennials? Do we expect to see these changes continue as a younger generation of donors start to give? Further, will we see greater changes in individual giving over the next few years if we line up the reports that indicate that younger generations of individuals are saddled with increasing amounts of debt in comparison to their parents and grandparents generations?
Donor Advised Funds – Here to Stay?
Donor Advised Funds have been a hot topic with many nonprofits and donors looking into these vehicles for their ability to manage charitable donations and provide desirable tax benefits. Donor Advised Funds not only experienced growth during 2018 but have been a growing trend over the past decade. In fact, donor advised funds are the nation’s fastest growing charitable vehicle with the number of these funds being five times the rate of private foundations.5 What makes these vehicles so attractive? An individual can contribute cash, securities and other assets to the fund and allow the fund to grow over time, contributing the money to a charity of choice at their convenience. The individual receives an immediate tax deduction benefit up front which may coincide with preferential tax planning for itemized deductions in light of the Tax Cuts and Jobs Act. As nonprofit organizations see a trend of donations shifting to larger donors and funds we anticipate that Donor Advised Funds will continue to be in the spotlight moving forward.
Looking to 2020 and Beyond
Can we predict what will happen in the realm of charitable giving in future years? No, but we can surmise that giving is influenced by economic factors, policy changes and uncertainty as well as by personal giving preferences. With that said, the trend of increasing foundation and corporate giving is expected to continue as high-wealth individuals seek alternative vehicles to give to the charity of their choice while maximizing tax benefits. Numerous analyses of the philanthropic landscape point to a widening gap between the wealthiest and poorest Americans, and this income disparity appears to be shaping giving to nonprofits as organizations increasingly see a trend of higher contribution amounts from fewer donors. In other words, nonprofits are relying more on long-term, slightly larger donors to fund their missions.
What Should Nonprofit Organizations Do?
In order to continue to advance their exempt mission, nonprofit organizations should stay abreast of changing trends and methods for online giving. Specific action should be taken by organizations to connect with individual donors realizing that place-based and localized giving tends to be the norm with respect to individual giving each year. Social media, online marketing and the ability of an organization to connect with the values and concerns of each generation could give an organization a distinct advantage. Consider the needs and wants of newer generations of donors who are excited to give and participate in the organization’s mission.
Nonprofits should continue to interact with individual donors despite the slow decline in individual giving. Remember, individual donors remain the largest category of support for nonprofit organizations. Cultivating meaningful relationships with individual donors also leads to long-term support, planned giving opportunities and legacy gifts. Nonprofit organizations should also remember that individuals are also the ones who ultimately request or determine the gifting of funds from Donor Advised Funds, foundations and corporate grants and sponsorships.
Citations & References
1 – Giving USA 2019: The Annual Report on Philanthropy for the Year 2018
2 – https://grahampelton.com/giving-usa-2019/ [7/8/2019]
3 – www.fidelitycharitable.org/guidance/philanthropy/what-is-a-donor-advised-fund.html [7/18/2019]
4 – “Breaking the charity habit,” Lindsay, Drew, The Chronicle of Philanthropy
5 – “The 2018 DAF Report,” National Philanthropic Trust