November is a time for giving thanks, spending time with loved ones and eating an obscene amount of food. If your turkey coma puts you in a thankful mood, you may consider paying it forward by making a charitable donation. Following are some tips to help you establish a charitable giving strategy.
Choose an Organization
The first step is to identify a reputable organization that can further a cause that matters to you.
Identify Your Passion
What type of impact do you want to make? Take some time to reflect on any significant events that have happened in your life. Did you lose a loved one to a certain disease? Rescue a dog from a local shelter? Consider donating to organizations that are significant to you.
Research
There are many wonderful, worthwhile charities out there, and there are also many ways to fall victim to charity scams. Before you donate, do your research to make sure you’re giving to a reputable organization. Make sure any charity you’re considering qualifies as tax exempt 501(c)(3) organizations and is financially healthy. Sites such as Charity Navigator and GuideStar provide great insight into a wide range of organizations.
Donate Early
If you wait until the very end of the year to make your annual charitable donations, it may be difficult to implement some of the strategies listed below. Beginning the process earlier in the year will give you time to identify organization(s) and make an impact in a tax-efficient manner.
Maximize Your Gift
Many employers offer to match employees’ charitable donations. Check to see if your employer does so and take advantage of that match to double your impact.
Consider Alternative Ways to Donate
To maximize your charitable impact while also reducing your tax liabilities, consider donating appreciated assets, not just cash. Donating stock that has appreciated for at least a year allows you to give 20% more because you’ll avoid triggering capital gains taxes. Your advisor can help you transfer shares directly to an organization of your choice.
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 that is advised by you, and you have the flexibility to 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 are able to avoid capital gains taxes.
- If you itemize your taxes, you can receive a tax deduction in the current year of up to 60% of your adjusted gross income (AGI) on cash donations.
- 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.[1]
- You can also receive a five-year carry-forward deduction on any non-cash gifts that exceed the AGI limit.
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 birthday money to donate. Talk about 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 be a great way to reinforce your family’s priorities and inspire your kids to be life-long givers.
At Hill Island Financial, we believe charitable giving is an important part of any client’s financial plan. We’ll help identify and implement charitable gifting strategies that help maximize your impact and minimize your taxes. For more information, contact us.
[1] https://www.irs.gov/publications/p526#en_US_2020_publink100017751
Hill Island Financial LLC is a registered investment advisor. This content is provided for informational purposes only. Hill Island’s financial professionals are not CPAs or tax attorneys and the information contained herein is not intended as tax advice. Please consult your CPA or tax attorney regarding your tax situation and the tax impact of charitable giving.
