Giving Back: 7 Tips for Establishing a Charitable Giving Strategy

by | Feb 1, 2024

Charitable giving in financial planning

Giving back to causes you care about can be incredibly rewarding and can also be a valuable part of your tax planning strategy. If you’re feeling inspired to make a charitable donation, here are 7 tips to help you establish a thoughtful charitable giving strategy.

1. Identify Your Passion

Charitable giving can be deeply satisfying, but everyone has different values. What type of impact do you want to make? Reflect on significant events or experiences in your life that have shaped your values and interests. Did a personal experience inspire you to support a particular cause? Consider donating to organizations that resonate with you on a deep level.

2. Do Your Research

Many wonderful, worthwhile charities exist, but many charity scams exist. Before you donate, research to ensure you’re giving to a reputable organization. Ensure any charity you’re considering qualifies as a tax-exempt 501(c)(3) organization and is financially healthy. Sites such as Charity Navigator and GuideStar provide great insight into various organizations.

3. Donate Early

If you wait until the end of the year to make your charitable donations, it may be challenging to implement some tax-efficient strategies. Beginning the process earlier in the year will give you time to identify the organization(s) and make an impact in a tax-savvy manner.

4. Maximize Your Gift Giving

Many employers offer to match employees’ charitable donations. Check if your employer does so and take advantage of that match to double your impact.

5. Think About Alternative Ways to Donate

To maximize your charitable impact while reducing tax liabilities, consider donating appreciated assets, not just cash. Donating stock that has appreciated for at least a year allows you to give more because you’ll avoid triggering capital gains taxes. Your financial advisor can help you transfer shares directly to an organization of your choice.

6. Consider a Donor-Advised Fund

A donor-advised fund allows you to set aside funds for charitable donations and receive a tax deduction in the current year while making your donations in future years. Your donation is held in an account you advise, and you can donate to organizations of your choice. There are several advantages to this approach:

  • Your donations grow tax-free.
  • By donating securities that have been held for more than a year, you can avoid capital gains taxes.
  • If you itemize your taxes, you can receive a tax deduction of up to 60% of your adjusted gross income (AGI) on cash donations in the current year.
  • If you itemize your taxes, you can receive a tax deduction in the current year on long-term appreciated assets in the amount of their fair market value, up to 30% of your AGI.
  • You can also receive a five-year carry-forward deduction on non-cash gifts exceeding the AGI limit.

7. Give as a Family

Donating to charities is a great way to reinforce your family values and deepen your impact. Encourage your kids to set aside a portion of their allowance or money received as gifts to donate. Discuss the importance of helping others, and allow your kids to help select the causes you support. Also, consider ways to volunteer as a family. Establishing a spirit of giving within your household can reinforce your family’s priorities and inspire your kids to be life-long givers.

At Hill Island Financial, we believe charitable giving is an integral part of any client’s financial plan. And frankly, it will make your heart feel full. We’ll help identify and implement charitable gifting strategies that help maximize your impact and minimize your taxes. For more information, contact us.

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