One of the splinters of the economic “recession” for the past 3 or 4 years has been a serious decline in charitable giving. Many professionals, including this author, believe that this will substantially change starting in 2011 for several reasons.
First, Income tax rates are likely going up, which gives a “bigger bang for your buck” on the charitable gift. If a person is in a 15% income tax bracket, then the tax benefit of a $1,000 gift is $150. On the other hand, if that person is in a 39% income tax bracket, the income tax benefit is $390.
Second, people are not inclined to give away “depreciated property” because the tax loss will be lost. Most people believe that we have reached the “bottom” in the downturn and assets are starting to appreciate. We have seen a nice uptick on the ticker tape recently on Wall Street. Gifts of appreciated property allows us to take an income tax deduction on the fair market value of the property (not the cost base) and at the same time, avoid the income tax consequences that would have been triggered if the property had been sold. For example, assume we bought a stock for $1,000 that is now worth $2,000. If we sold the stock, we would pay tax on the $1,000 of “gain”. On the other hand, if we donate that property, we receive a tax deduction on the entire value of $2,000 and avoid the income tax on the “gain”.
And third, people are generally feeling better about the economic outlook now than they did a year ago. As the economy continues to improve, we will see increases to charitable giving. People feel more philanthropic and have a much greater sense of “giving back” when they are secure in their jobs and have a positive outlook on the economy.