I’ll never forget the time I stepped down from a junior board position. It was a difficult decision because I supported the charity’s pro-life mission. Yet fundraising wasn’t my area of genius, and my time was better spent with family. Have you ever stepped away from a meaningful cause, instead opting to financially support the mission?
Your motives for giving differ from mine, but you care deeply about using the gifts God has bestowed on you to benefit others through time, talent, or treasure. Below, I’ll outline five ways to maximize your financial charitable contributions.
1) Make non-cash gifts part of your giving plan
Cash gifts are great and can be helpful to nonprofits. However, there are other non-cash methods to benefit charities. You’ve probably donated household items and clothing to charities in the past. But are you keeping a detailed list of the items being donated, their thrift shop fair market value, the original purchase price, and the donation date? If not, you’re overlooking important tax documentation (consult IRS Publication 526 for details).
Furthermore, gifting appreciated stock to a charity means you won’t pay long-term capital gains tax on the stock appreciation. For instance, you want to make a $1,000 donation, and you hold $1,000 of General Electric stock. Your cost basis in the stock is only $600. Rather than selling the stock and incurring $400 of long-term capital gains tax, you give the stock directly to the charity. The charitable organization doesn’t have to pay capital gains tax due to non-profit status. You still receive a $1,000 charitable deduction and avoid paying $100 in capital gains tax ($400 gain multiplied by a blended 25% tax rate).
2) Create impact with your contributions
We all have big hearts and want to give to several different causes. Yet, there are so many valuable causes in the world. Your contribution will go further if you select a few causes and give meaningfully to them. Your time is more valuable than writing 50 different $100 checks and tracking them for income tax purposes. Furthermore, you can get more involved with the charity’s mission and perhaps serve on a board if you choose five to fifteen charities to meaningfully support.
My husband and I provide significant financial contributions to twelve nonprofits, and that’s a nice balance for us. We know where our dollars are going, and we understand the direct impact it has on each intended recipient. We continue to rely on Charity Navigator for independent rankings on the nonprofit’s level of transparency and accountability.
3) Open a donor-advised fund
If creating impact resonates with you, a donor-advised fund (DAF) may be a wonderful method to carry out your charitable intentions. Having worked with families of significant wealth for seven years, I helped clients implement various philanthropic strategies. The DAF is my vehicle of choice for its simplicity and ease of use.
DAFs are ideal if you haven’t already committed a specific dollar amount to a charity in writing and you want to give substantially to more than one charity. Fidelity allows you to open a DAF for as little as $5,000. You make an initial contribution (i.e. cash, stock, or mutual fund) and invest it into one of the DAF’s pre-approved investment options. The charitable contribution is immediately deductible even if you delay a charitable grant request until the following tax year. When you are ready to distribute money to charity, contact the DAF sponsor and submit a grant request. You can make multiple grant requests if you wish to give to multiple charities.
For example, you want to donate $5,000 each to five different charities over the next two years. You own appreciated stock valued at $25,000, and you contribute it to a Donor Advised Fund in 2018. Your first charitable grant request is submitted in November 2018, and the other four grant requests are submitted in February 2019. Your $25,000 charitable contribution deduction applies to the 2018 tax year even though four of the charities did not technically receive the money until early 2019.
Like any investment, the value of the DAF fluctuates so consider your timeline. Let’s suppose you chose a risky investment and the account declines in value to $24,000 in February 2019. You either wait for the rebound or shortchange one of the charities and give them only $4,000. And vice versa: if your initial contribution increases to $26,000, you have an extra $1,000 to allocate. Opting for a lower-risk investment mix may be better for short-term donations. This technique and other charitable giving strategies are often best left to the oversight of a financial advisor who is skilled at guiding you through the process.
4) Carefully contemplate timing
Many donations are made in the last few weeks of the year, but the needs of a nonprofit are year-round. Some nonprofits promote Giving Tuesday, held the Tuesday after Thanksgiving, to spur giving outside of December. Ultimately, as the donor, you are responsible for the timing of your donation.
Instead of waiting until the last minute for your charitable contribution, think about making a one-time donation during an untraditional time (i.e. spring or summer). If you insist on cash gifts, enroll in automatic monthly or quarterly payments to the charitable institution. This smooths cash flow for both you and the charity!
5) Stack deductions in one tax year
The Tax Cuts and Jobs Act (TCJA) has substantial implications for U.S. families, and many nonprofits are worried that charitable giving will decline with the enhanced standard deduction. With proper planning, you can fulfill philanthropic goals and still receive an income tax benefit.
If you’re close to the new $24,000 standard deduction threshold as a married couple, consider doubling or tripling your charitable contributions in a single tax year. You’ll itemize deductions in the year you maximize charitable contributions and then resort to the standard deduction in the subsequent tax year. Donor-advised funds (DAF), illustrated above, are especially beneficial if you want to “stack” charitable donations. You take the tax deduction in the year you make the contribution to the DAF regardless of the date the charity receives a grant.
You Don’t Have To Do It Alone
Many of the strategies I shared are advanced giving techniques, which means they aren’t for everyone. And remember that you don’t have to pursue a strategy alone. I’m knowledgeable in the charitable giving space, and I guide faith-filled families who want to thoughtfully steward their financial and emotional resources. We can discuss the benefits and implementation steps of each strategy. Please contact me if you’re interested in learning how we can partner together on your philanthropic and life goals.
Deborah L. Meyer, CPA/PFS, CFP® is a fee-only financial planner and investment advisor based in Saint Charles, Missouri who helps faith-filled families to achieve their financial and life goals. As the owner of WorthyNest, Deb empowers families nationally to build long-term wealth. Find Deb discussing family-minded finance on LinkedIn, Facebook, or Twitter.