Charitable giving is embedded in American culture. According to a LendingTree survey, 56% of Americans gave to a charity of some kind in 2021. Baby boomers (individuals born between 1946 and 1964) topped the chart at 60%, and my home city of Birmingham, Alabama, ranked as the most charitable, with nearly 92% of residents including charitable deductions on their tax returns.
Because Giving Tuesday — a dedicated day for giving back — is on the Tuesday after Thanksgiving, this is a good time to revisit some practical ways to incorporate charitable giving in your budget. Below are a few tips to consider.
Get Comfortable With the Charity
How does the charity you have in mind serve the community? How will the charity use your generous gift? How much of the donor revenue is allocated to administrative costs? The Charities Review Council provides seven questions to ask a charity before making a donation. One rule of thumb to keep in mind is that a charity should spend at least 65% of its donor revenue on actual services. If you would like to learn more about how a charity spends donor contributions, check out the resources available through Charity Watch, Charity Navigator and BBB Wise Giving Alliance.
Donate Your Time
A simple way to give to a charity, especially if you’re on a tight budget, is to volunteer your time. If your volunteer service requires you to drive your own car, keep tabs on your mileage; you may have an opportunity to deduct it on your tax return.
Donate Non-cash Items
The IRS recognizes charitable donations of non-cash items, such as clothing and furniture, as long as the items are in good condition. If you donate a non-cash item to a local charity, ask for a receipt. The IRS offers a handy guide, Publication 561, that can help you determine the value of the property you donated.
Consider Donating Appreciated Securities
If you have owned appreciated stock shares for more than a year, you can donate the shares outright to charity and reap a variety of benefits. Both you and the charity may be able to avoid capital-gains taxes (because you didn’t sell the shares), and you can deduct the fair market value of the asset on your next tax return.
Ask About an Employer Matching Benefit
Did you know that some companies offer charitable matching contributions? According to Charity Navigator, if you are a full-time employee of IBM and contribute to certain nonprofit organizations, such as a hospital or college, IBM will match your donation dollar for dollar up to $10,000. Many large companies offer similar benefits.
Redirect Your RMD to Benefit a Charity
If you must take a required minimum distribution (RMD) from your IRA this year and you plan to make a charitable contribution from the income anyway, ask your account provider about the qualified charitable distribution (QCD) option. The QCD option allows you to make a gift directly from your IRA to the eligible charity (up to $100,000 a year) and gain a few extra perks.
First, you’ll increase the amount you give to the charity because the gift is made on a pre-tax (or gross amount) basis. Second, you’ll satisfy your RMD. Third, you’ll reduce your taxable income because you did not receive the funds. And finally, you may get some tax relief because the QCD does not count against your standard deduction.
Here’s an extra tip: If you reach age 70 ½ this year, you are still eligible to take advantage of the QCD option under the current law, even without being subject to RMDs until age 72.
If you are unsure as to whether a charity is eligible for QCD gifts, you can use the GuideStar search engine for the answer.
Check Out the Donor-Advised Fund
Some individuals prefer to get a tax deduction in one year (typically for gifts in excess of the standard deduction limit) and budget their gifts to charities over time. The donor-advised fund can be a good option for this strategy. A variety of gifts — from cash donations to investment securities and even cryptocurrencies — can be donated to a donor-advised fund.
Charitable giving is an important part of a financial plan. To learn more about how these tips can impact your own financial plan, reach out to a CFP® professional in your area.