The unprecedented surge in charitable giving in the US in 2021, reaching an estimated $485 billion, is not expected to be sustained in the long term as the economy recovers and inflation pressures mount. As a result, nonprofit organizations face rising costs while exploring new ways to engage with donors, such as virtual events and digital fundraising campaigns. Despite these challenges, Americans’ generosity and commitment to supporting California communities remain evident.
Charitable giving plays a critical role in supporting the work of nonprofit organizations, social causes, and communities. However, inflation can significantly impact charitable giving and organizations’ ability to continue their work.
Re-evaluating donations in harder economic times
The effect of inflation on charitable giving depends on several factors, including the overall state of the economy, the attitudes and beliefs of donors and the level and duration of inflation. As a result, nonprofit organizations may need to adapt to these changes by finding new funding sources or reducing their services; donors may need to re-evaluate their priorities in light of inflation.
Estate planning and charitable donations
Estate planning can help donors structure their charitable donations to minimize their tax liability, allowing them to donate more money to the causes they care about. For example, individuals may choose to make a charitable donation as part of their estate plan, which can reduce the value of their taxable estate and lower the amount of estate taxes owed.
In addition to tax benefits, estate planning can help ensure donors’ charitable donation distributions are according to their wishes. Donors may create a charitable trust, which allows them to specify the use of their donations and ensure the philanthropic causes they care about continue to receive support even after they are gone.
Mitigating adverse effects of a strained economy
A rise in inflation can potentially reduce charitable giving as it reduces the purchasing power of individuals and households, leading to less disposable income available for charitable donations. However, the tax benefits of estate planning can help to alleviate some of the negative impacts of a strained economy for philanthropists.