Supporting charitable groups can make you feel good, offer tax benefits and even enhance your financial legacy. ‘Tis the season for giving back, and there are many groups asking for support this time of year. But, despite your best intentions, simply handing out money — particularly a large sum — to any group that asks might not be practical or wise.
By making smart philanthropic choices, you can create a legacy that aligns with your values and financial goals. Here are a few tips to donate wisely.
Choose a cause that matters to you
Strategic philanthropy is a way you can use your financial independence to make a difference in the world. So how can you find organizations whose missions align with your values and vision? Start by thinking about what kind of world you hope to leave for future generations. Are there situations around you that make you concerned, whether it’s a family illness, or social or environmental issues? Perhaps there are organizations you’re already involved with, such as your alma mater or community group. Identifying what you are passionate about can help you decide how to focus your charitable funds.
Make sure you know where your money is going
Creating and controlling your financial legacy starts by truly getting to know the organization you plan to support. So, before investing your funds, consider investing your time. Volunteer to become more familiar with the organization, its mission and its leadership, such as being part of an advisory board or committee. This can help you see how assets are being used to impact and support its mission.
If you don’t have the time, there are other ways to look behind the curtain. Ask family, friends and colleagues about organizations they are connected to and why. Perhaps they volunteered in the past or attended a fundraiser and have seen some of the work. You can also look online — sites like Charity Navigator and Charity Watch publish ratings, annual reports and financial statements. These sites recommend finding organizations that direct 60 percent or more of funds to program services.
Make it a win-win with your taxes
If a tax deduction is important to you, maintain records of your giving and discuss your philanthropic plans with your tax advisor. The IRS requires receipts from the charity for donations of $250 or more. Also, you’ll want to verify that the charity is eligible for tax-deductible contributions. Groups that engage in lobbying or political activities aren’t eligible. Ask for the charity’s tax-exempt letter to be sure.
Gifting stocks to charitable organizations is another potentially tax-advantaged way to give. The organization can hold on to the stock or sell it to fund programming, which may limit or eliminate capital gains tax. Charitable remainder trusts can also be helpful for reducing taxable income by dispersing income to the beneficiary of the trust during a specified timeframe.
Create your giving plan
Once you’ve identified charities, you’re ready to plan out your giving strategy. You can give the entire amount to one charity in a large one-time gift or spread your funds across multiple charities over multiple years or even decades. Besides cash, you might consider a donor-advised fund, leaving a legacy in your will, socially responsible investing, volunteering time or donating goods. No matter how you are able to make a difference, it’s a great feeling. If you’d like help developing a plan customized to your personal situation, please consult your advisor. You can reach us by clicking the button below.
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