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This giving season, give wisely! Thumbnail

This giving season, give wisely!

For many, Thanksgiving begins the giving season. It's a time to share our many blessings with others—the people and causes in our world that are in greater need than ourselves. Happily, one silver lining of the pandemic is that it accelerated charitable giving in the US and around the world. With the needs of others in the spotlight, people are giving more than ever before. 

This time last year, the outpouring of charity to nonprofit organizations was remarkable—especially considering the level of financial uncertainty faced by so many. On GivingTuesday (a movement that began in 2012 to encourage people to make a charitable donation on the Tuesday after Thanksgiving), $2.47 billion was donated to nonprofits in the US, and an incredible 34.8 million people participated—a jump of 29% over 2019. The impact was huge. Feeding America, a national network of food banks and other agencies that help people get enough to eat, received $515 million in 2020, marking a 354% increase over the prior year. Donations to the Health Research Alliance, a nonprofit representing over 90 funders focused on biomedical research,   jumped 156% last year, hitting $915 million. Other charities that saw donations pour in were the Smithsonian ($203 million), the World Wildlife Fund ($226 million), and dozens of universities from coast to coast. On the giving platform GoFundMe, $9 million in donations were received in 2020, and 60% of the fundraisers started in the US supported small businesses and their employees.

If all this good news has you enthusiastic about giving this season (and I hope it does!), it's a great time to put your money where your heart is. While you can donate cash to your charities of choice, there are several tax-savvy giving strategies that can help you maximize your charitable dollars—both immediately and over the long term. Here are just a few to consider:

  • Donate from your IRA. Qualified Charitable Distributions (QCDs) from individual IRAs can be a wise choice—especially if you have a sizable retirement account. A QCD allows you to donate up to $100,000 of your tax-deferred IRA savings annually—and the portion you donate qualifies toward your annual Required Minimum Distribution (RMD). Even better, it isn't added to your Adjusted Gross Income (AGI). The gift to charity is given with pretax dollars, and that's an especially nice benefit if your tax bracket is 25% or more.

    To qualify to make a QCD, you must be 70 ½ or older on the date the donation is made. Funds must be transferred directly from your IRA to the charity, and the transfer must be completed before you receive any other distribution toward your RMD. Contact your IRA custodian or financial advisor to make it happen.
  • Create a Donor-Advised Fund (DAF). If you have significant assets to donate, this type of philanthropic fund allows you to receive a current-year tax deduction (under the current rates) while supporting the charities of your choice for years down the road. Donor-Advised philanthropic funds are giving funds established by public charities and are widely available. Some of the better-known funds are the American Endowment Foundation, Schwab Charitable, and Fidelity Charitable, but there are many other 501c(3) organizations that make it easy to contribute to their DAFs. Tax benefits include bunching deductions in a single year, allowing you to maximize the benefit of itemized deductions. To further increase the tax benefit, many people opt to fund a DAF in a high-income/high tax bracket year.
  • Donate appreciated stock or other investments "in kind." If you've been invested in the market for a decade or more, you have gleefully watched your portfolio climb faster than you imagined it could back in 2010! That's great news, but it can also result in a significant tax burden when you sell securities. Donating stocks “in kind” can help. When you donate appreciated stocks to a tax-exempt organization, you receive a tax deduction for the stock's fair market value. When the charity then sells the stocks, it is exempt from any tax liability. The only losers in this transaction are Uncle Sam and the state taxing authority. Many charities have brokerage accounts already set up and ready to receive your gift of shares that they can sell tax-free whenever they choose.
  • Name a Charitable Beneficiary to your retirement account. If you intend to leave a legacy gift to a church or charity, naming them as an IRA beneficiary is an excellent approach. Many people make the mistake of earmarking funds for a charity in their will or trust, resulting in unanticipated tax consequences that can significantly reduce the gift. For example, when your daughter inherits your IRA directly, she'll have to pay taxes on that money for the 10-year period following your death, even though the assets are donated to your chosen charity. But when the church or charity is named as the beneficiary, there is no tax obligation when they cash in the IRA. Consider this smart tactic rather than naming the charity in your will or trust.

Once you've decided on the most tax-savvy approach to giving, you'll want to ensure that you are giving to a worthy recipient. There are numerous sites to help you research potential charities to ensure that they're legitimate and that your dollars will be used wisely. Take a look at Charity Navigator and Charity Watch to explore the options and narrow them down to just a handful. Making significant contributions to a select few rather than smaller contributions to many will ensure your gift has a more substantial impact, and it will give you a stronger connection to the charities that are close to your heart—and vice versa. 

Of course, the most important thing is simply giving what you can, when you can, to the charities you care about most. Remember that every dollar makes a difference to the people and causes that can benefit from your help. I hope you'll consider giving generously of yourself and your wealth. 

Need help setting up a donor-advised fund, QCD, or building your charitable giving strategy? As always, I'm here to help.