As a concept, philanthropy, whose name derives from the Greek “love of humanity,” typically elicits images of large-scale gifts from high net-worth individuals, such as Bill Gates and Warren Buffet. Yet the reality of charitable giving, and philanthropy in general, is far more complex. While charitable giving to nonprofit organizations is perhaps the most common and best-known philanthropic activity, philanthropy itself encompasses any social practice that furthers the greater good or fosters healthy, harmonious communities.
Charitable giving entails a broader range of activities than often realized. Any organization, business or individual who volunteers goods, funds or services to a charitable nonprofit, or an organization considered tax-exempt under IRS code 501(c)(3), practices charitable giving. According to the National Philanthropic Trust (NPT), Americans gave $373 billion to charity in 2015, a record high even when adjusted against inflation. Individual gifts represented 71% of the total given, with an average household contribution of $2,974.
Similarly, a recent study of high net-worth giving conducted by U.S. Trust of Bank of America and the Lilly Family School of Philanthropy at Indiana University found that 98% of high net-worth households engaged in charitable giving in 2013, with giving rates increasing in succession with wealth levels. Both the NPT and U.S. Trust forecast continued growth in the philanthropic sector.
An increased variety of giving mechanisms, including online donations and donor-advised funds (DAF), may account for the uptick in charitable giving. Donor-advised funds, in particular, have emerged as a popular donation vehicle. By allowing donors to make irrevocable distributions to dedicated DAF investment accounts, donor-advised funds maximize the value of dedicated assets while returning donors immediate tax-deductibility, per IRS criteria. Donors designate account advisors, beneficiaries and successors and can decide where and when to distribute funds at any point after account establishment. DAF’s give donors the option to give anonymously, as well as to grow the fund at their discretion.
For both individuals and businesses, the advantages of charitable giving, and philanthropic activity in general, are many.
Donor Deductibility: If not the most enduring benefit of charitable giving, the corresponding tax deductions can be the most immediate. Donations to any organization considered tax-exempt under IRS code 501(c)(3) can be deducted from the donor’s total income that same year; currently, IRS regulations allow both corporate and individual donors to deduct up to 50% of their total annual income through charitable giving. Tax deductions can be especially beneficial in establishing lower tax brackets for donors.
Intergenerational Appeal: Tagged “the giving generation,” millennials have proven inclined to give generously to support social welfare and community improvement, despite the fact that many entered the workforce at a time of historic economic instability. Millennials may therefore be more likely to patronize or seek employment with businesses that engage in public charitable giving, while millennials themselves can leverage their charitable preferences to establish rewarding careers.
Unique Brand Identity: Charitable donations and philanthropic activity can amplify a business, organization or individual’s unique brand identity (UBI). The IRS designates a wide variety of organizations and causes as charitable: religious organizations, educational institutions, scientific research groups, hospitals, animal welfare societies, environmental organizations and organizations otherwise dedicated to eradicating human poverty, hunger and suffering all qualify for charitable status. With carefully researched strategic giving, donors can align themselves with the cause the recipient furthers. Volunteerism and the donation of professional services are equally powerful means of strengthening UBI.
Increased Visibility: Along with UBI, philanthropic activity boosts business and individual visibility, positioning givers before new audiences and potentiating future partnerships. Furthermore, the relationships established via charitable activity are likely to be fruitful and long-lasting, given their origins in shared interests, ethics and convictions. Charitable giving supports community and social dialogue while connecting people via their core values.
Although philanthropy’s most important benefit—the opportunity to generate real social, environmental or global change—may also be its most obvious, it cannot be overstated. In its broadest capacity, philanthropy is crucial to the health, safety and well-being of every member of society, not just its poor and underserved populations. A world without philanthropy, and robust charitable nonprofits, serves no one.
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