Awhile back I got a great question by email about the tax benefits for charitable giving:

Are you aware of any data or where one might find data, on comparing how much people donate when tax deduction is and isn’t available….that is, data that would quantify the impact tax incentives have on giving?

~ Jane Bowers

A research study from the Urban Institute examines the impact of tax credits (which is different from tax deductions) using data from 1998-2000: Charitable Tax Credits Boon or Bust for Nonprofits?

The most recent data available from the Arizona Department of Revenue show that the tax credit seems to have added some new money to the nonprofit sector, although the downtrend in the economy confounds the picture . In 1998, 2,856 filers claimed $475,438 in tax credits. One year later, the numbers increased (6,712 filers claimed $1,161,162 in tax credits).

For the wealthy, tax benefits seem to be a significant factor in giving. This quote comes from a article, Tax-Avoidance Trifecta:

For high-income taxpayers seeking to shelter income, philanthropy can be the gift that keeps on giving. Instead of writing checks, though, savvy investors are signing over appreciated securities.

In my experience the majority of donors, those not in high income brackets, give to causes they believe in and tax benefits are secondary. Telling someone that a donation is tax deductible doesn’t go very far in convincing them to make a donation.  Most charities offer this benefit so never think that this alone will convince someone.

Many 501c4 organizations, such as those that participate in lobbying activities, do not offer tax benefits to donors and they still manage to raise money for their causes.

What do you think about tax benefits for charitable giving? Do you know of other research papers on this topic? Post a comment below.

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Posted on 07 April 2010

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5 Comments For This Post

  1. Carol Topp, CPA says:

    I agree with Sandra that most people give to causes they believe in and the tax deduction is a nice added benefit.

    That said, I know several people that do not take any or all of the deductions they are allowed, especially people compelled by their religious faith to be generous. They have expressed to me that somehow taking a tax deduction seems to lessen the value of their giving. They give to please God or out of a thankful attitude, not to get a tax deduction.

    I tried to convince one person that by taking a tax deduction, they could give more money to their church and not to Uncle Sam. My arguments fell on deaf ears because these generous souls are very altruistic. May they increase!!

  2. Sandra Sims says:

    Hi Carol — thanks for your comments. That reminds me of people who would rather their donations be anonymous. They prefer to give and enjoy the satisfaction of being able to help, without being singled out or thanked publicly. I feel that way most of the time. (But will still take the tax deduction!)

  3. Sherry Truhlar says:

    I agree, Sandra, most people are giving for reasons other than the tax break. This is especially true for donors of auction items who do not necessarily receive a tax deduction for their generosity. (Here’s a link to an answer from an IRS agent who explains that a “One week stay at my vacation home” is not deductible: )

    I suspect volunteers and staff focus on the donation as a tax deduction when they don’t have a benefit –focused message. Organizations might improve their donor relations if they spent time crafting messages focused on what donations mean to the organization.

    And certainly, as an auctioneer, I can help the organization broadcast that message. When I’m on stage, I can say, “Thank you, bidder #324, your $400 donation tonight will care for 25 people tonight in our shelter.” In this way, I’m connecting the donation to the mission.

  4. Edward Higgins says:

    This does not excite me but this is what the IRS has to say.

    The tax statutes were re-codified by an Act of Congress on February 10, 1939 as the “Internal Revenue Code” (later known as the “Internal Revenue Code of 1939”). The 1939 Code was published as volume 53, Part I, of the United States Statutes at Large and as title 26 of the United States Code. Subsequent permanent tax laws enacted by the United States Congress updated and amended the 1939 Code.

    ALL taxes are theft. The government will continue to take more money from the rich AND middle class as long as we are okay with the idea of services provided at the barrel of a gun. Propaganda is the only thing propping up the idea of government.

  5. Tobler Law says:

    Honestly, of course it’s a big factor on donations! Why give if it doesn’t help you at all?

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