As we approach December, it’s time to finalize plans for year-end charitable contributions. While you may have consistently donated to the same organization in the past, you may find that you’re interested in stretching your charitable dollars further this year. A newfound hobby or fresh influence on your life might even have you considering supporting an entirely new group.
If you haven’t already, it is wise to begin working with your financial advisor and creating a strategy for year-end giving. Planning now will allow for breathing room as other holiday pressures arise and will help ensure your donations have a maximum impact. Here are three questions to ask yourself as you begin planning for year-end charitable donations:
- What is my reason for giving?
Did you know that doing good things for other people has been scientifically proven to make you a healthier person? In 2008, professors from Harvard confirmed that individuals had an increased sense of happiness when giving money to others as opposed to spending it on themselves. Charitable giving has also been found to relieve stress and activate the pleasure regions of the brain.
While there certainly are personal and emotional benefits to giving, we cannot ignore the tax benefit associated with donating. Giving to charity is a favorable strategy that many high-net worth individuals use to better manage their tax bill. Consult your tax advisor for recommendations specific to your situation.
- What organizations do I want to support?
Approximately 70% of total giving received by charities comes from individuals, meaning many organizations cannot carry out their missions without your support. There are a countless number of organizations that would be honored to have your backing. If you aren’t sure where to begin, consider what environmental or social issues you are most concerned about and which personal values you hold close to your heart. You might even consider getting input from your spouse or children to help you make an informed decision that will make the entire family proud.
You can use tools like Charity Navigator, chat with friends or colleagues or look within your community to help you find a reputable organization. If it is a new charity or one that you are unfamiliar with, make sure you read recent impact reports or volunteer to ensure you have a clear picture of how the organization is using donor dollars.
Remember not all charities qualify for tax deductions by the IRS. If your goal is to deduct your contribution, make sure to contribute to an organization that qualifies. It is also wise to familiarize yourself with the rules for charitable deductions as laid out by the IRS.
- Which gifting strategy is best for me?
The strategy you use to make your charitable contribution will significantly influence the benefit you receive. The best option for you will depend on the amount you wish to gift, type of gift, age and level of management you want to hold over the gift. Your tax advisor will be able to help you make an informed decision that best fits your lifestyle; however, you might consider any of the following:
- Donor advised funds allow account owners to reserve money in a separate account for future charitable use. Donors are able to make a sizeable contribution upon opening the account, receive an immediate tax deduction on the total contribution, and grants can be issued in the future from the fund. This strategy might benefit you if you otherwise would not be able to exceed the standard deduction by lumping multiple years of gifts into one.
- Traditional IRA owners over 70.5 years old may want to consider completing charitable giving directly from an IRA account. Using this strategy, donors can contribute up to $100,000 annually and reduce their overall taxable income.
- Beyond cash, donating appreciated assets is a tax-efficient strategy that benefits you and the organization you are looking to support. If you’ve owned the assets for at least a year, you might be able to avoid capital gains taxes and instead claim the value of the donation as a deduction. The charity receiving the donation will likely not owe taxes either.
With only a few weeks left in the year, the time to act is now if you wish to maximize the impact of your charitable donations. With a little strategic planning and advice from a team of qualified professionals, you can help a deserving organization further its mission while benefiting from tax savings. For more information on how giving can fit within your long-term financial goals, connect with a member of the NNP team today.