With the holidays approaching, we rediscover the spirit of giving and the urge to share all of our blessings with those less fortunate. Volunteering and donating to charity extends beyond just spreading joy, but also gives us the opportunity to make a meaningful impact within our community. Yet, amidst the gift exchanges and celebrations, navigating the terrain of charitable giving, while staying financially astute, can be a balancing act.
As a financial advisor, I see generosity everyday through conversations I have with my clients. Whether they’re looking to donate time, resources, or money, there are always questions of how to maximize the gifting potential for the greatest good.
In this blog, I’ll explore the financially savvy approach to charitable giving and uncover four strategies that give you the opportunity to make a meaningful impact without straining your wallet.
What are the financial advantages of donating to charity?
No one aims to gain from being kind, but generosity often brings unexpected rewards. Aside from the joy of helping, charitable giving can have financial benefits, too.
- Donating to qualified charities can often provide tax benefits, allowing you to deduct contributions from your taxable income.
- Strategic giving can help diversify your portfolio through donor-advised funds or appreciated asset donations. This could potentially reduce capital gains taxes while supporting causes close to your heart.
- Charitable giving cultivates a sense of social responsibility, enhancing your reputation and network, which can yield unforeseen opportunities in both personal and professional spheres.
By aligning your philanthropic goals with financial planning, giving to charity becomes not just an act of generosity but a shrewd financial move with a multifaceted set of rewards.
Four Steps Towards a Financially Savvy Donation
Though giving to charity seems relatively simple, whenever finances are involved, it’s important to take a moment and do a little bit of research. Below, I’ve listed four strategies that will encourage you to donate thoughtfully and efficiently, ensuring both the causes you support and your financial well-being will both benefit from your generosity.
Be financially savvy when navigating charitable giving wisely by considering the following strategies:
1. Make smart charitable donations
The top priority of charitable giving is the good it does for others, but it’s also important to donate your resources in a tax-friendly way. To do this efficiently, it’s essential to understand the implications and strategies to maximize deductions.
- Qualified Charitable Distributions (QCD)
Making a QCD from your IRA (if you’re over 70 ½), can be excellent for retirees as they can donate all or a portion of their annual RMDs to charity without incurring tax consequences.
- Establishing a donor-advised fund (DAF)
DAFs enable you to give assets, take an immediate deduction, and allow the assets to grow in value until you’re ready to give. They can be excellent vehicles for year-round charitable efforts.
- Bunching contributions
Bunching charitable donations into the same tax year to take advantage of itemizing.
- Donating appreciated assets
Giving stocks, real estate, or other assets that have gained in value straight to charities can get you a deduction for their current worth without facing capital gains taxes while also increasing the value of your gift.
2. Document your giving
Always maintain records of your deductible donations, regardless of their size.
- For monetary gifts, acceptable documentation includes a bank statement, a credit card statement, or a receipt from the charity detailing the organizer’s name, date, and amount, with a canceled check.
- If you contributed to an automatic deduction from your paycheck through your employer, keep copies of your W-2 or pay stubs showing the amount and date of your donation.
In certain circumstances, you’ll need additional documentation such as:
- Making cash or property donations with more than $250.00
The IRS needs a written acknowledgment from the charity, specifying your cash donation amount, any received items in exchange, and their estimated value. Make sure you receive this letter by the tax filing deadline for the year of your contribution.
- If you deduct at least $500 worth of noncash donations
Complete Form 8283 when deducting over $500 in donated items. If the items surpass a total value of $5,000, include an appraisal along with the form.
Documenting your giving not only helps with tax benefits, but also promotes accountability, transparency, and effective financial planning.
3. Choose a reputable charity that can make the biggest impact
Your donation has the ability to make a significant impact no matter what the size. Unfortunately, not all charities are the same and the donations they receive can be used for a variety of different purposes. This is why it’s important to research the charity’s mission and programs to make sure that their impact aligns with your giving intentions.
Thanks to the internet, researching doesn’t have to be daunting. For example, websites like Charity Navigator, a non-profit analyzer tool, compiles data from the IRS, partners, and charities themselves to create unbiased ratings so you can find charities that align with your passions and allow you to give with confidence.
You can even dig a little deeper…
Since charities receive special benefits from the government such as having tax-exempt status, all exempt organizations must file a tax return called a Form 990 with the IRS each year to comply with federal regulations. And since Form 990s are open to public inspection, anyone can do a quick search on the internet to deep dive into any charity they wish– and they should.
4. Pick an organization close to your heart
Another way to make charitable giving meaningful is to pick one that resonates with you. Every charity has a mission and that mission typically connects with a significant experience or emotion. Through my own life experiences, I’ve been drawn to a few organizations that I proudly give my time, resources, and regular donations to:
Heartlinks Grief Center– Greater St. Louis Area
Heartlinks, a program of Family Hospice of Belleville, assists grieving children, individuals, families, and groups through individual and family counseling, peer support groups, and other supportive community programs regardless of ability to pay.
Focus St. Louis– St. Louis, Missouri
FOCUS is a program that believes everyone possesses the power to be a leader and that even the most difficult issues are solvable. Through their experience-based leadership programs and civic issues education they help people better understand our region and build their capacity for change.
Boys Hope Girls Hope– St. Louis, Missouri
Boys Hope Girls Hope’s mission is to nurture and guide motivated young people in need to become well-educated, career-ready men and women for others.
United 4 Children– St. Louis, Missouri
United 4 Children wants to ensure that each childcare program and educator has free access to more than only the minimum supports needed to operate per state guidelines.
Whether you’re donating money or dedicating your time, maximizing your impact is key. After all, using your resources wisely results in greater support for the causes closest to your heart. When deciding how to give back this holiday season, reach out to Toberman Wealth for guidance on how to make responsible donation strategies that make a real difference.
Toberman Wealth is a fee-only, independent fiduciary firm based out of St. Louis. Our priority is to help you live comfortably now, without sacrificing your financial future later. Whether starting to invest for retirement in your 50s or actively planning for retirement in your 60s, we help people nearing a transition build a resilient retirement plan. We operate in the best interests of our clients, always, and our top priority is to help you live comfortably now, without sacrificing your financial future later.
If you’re looking for an investment advisor to help you build a giving strategy that impacts an organization you hold close to your heart, feel free to book a meeting or give us a call.
Craig Toberman is a Partner at Toberman Becker Wealth – a fee-only, fiduciary financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.