A personalized charitable giving plan can optimize both one’s charitable impact and personal finances. By integrating charitable goals into a holistic financial plan, you can increase your charitable budget, make more impactful gifts and maximize your charitable legacy.
Consider developing your own charitable giving plan using the following process.
First, determine which causes you want to promote. You may have a definitive answer to this question, but some of us need help narrowing our list of causes and gifts. Consider the following questions. What are your core values? What issues are you passionate about? What changes do you want to see in your community?
Second, decide where you want to promote your preferred causes. Your neighborhood? Your city? Clallam County? Your watershed or ecosystem? Is it a nationwide cause? A worldwide cause? If you choose to promote multiple causes, the location and scope may be different for each.
Third, determine the amount of financial resources available for charitable giving. As you think about your core values and your desire to make an impact, you may realize that your spending is not aligned with your values and goals. When was the last time you cleaned up and refocused your household budget? What can you reduce or eliminate in order to increase your charitable giving budget? If you are retired, has your “nest egg” grown more than expected? Consider updating your financial projections to see if you can comfortably increase your charitable contributions.
Fourth, determine the type of financial resources available for charitable giving. Do you have assets with substantial capital gains that can be donated in kind? Do you have large amounts of pre-tax money in individual retirement accounts (IRA) or employer retirement plans? Certain charitable giving strategies may help reduce or eliminate the tax liability embedded in these assets.
Fifth, decide if you want to emphasize your lifetime charitable impact or your legacy charitable impact. If you are in a fortunate financial position, you may want to accelerate your charitable giving so you can see the “fruits” of your philanthropy while you are still alive.
Sixth, assess your answers to steps one through five and determine which charitable giving methods are most beneficial to your overall financial plan. While tax benefits should not be the primary motivation for charitable donations, taking advantage of them can maximize your impact. Here are some specific strategies to consider for your 2021 charitable giving plan:
• All taxpayers can deduct $300 of charitable contributions made by cash or check (itemizing deductions is not required). A married couple can deduct $600 of contributions if they file taxes jointly.
• If you are close to the threshold for itemizing deductions, consider “bunching” two or more years of charitable gifts into one year in order to take advantage of the additional deductions.
• For taxpayers who are able to itemize deductions in 2021, cash contributions made to qualifying charitable organizations of up to 100% of your adjusted gross income can be deducted.
• A donor advised fund (DAF) can be used in combination with the previous two strategies. You can make a substantial contribution to a DAF and take an immediate tax deduction, but then distribute specific gifts to the charities of your choice over a multi-year period. The money in a DAF can be invested and grows tax-free.
• If you want to make a substantial gift to one charity, the organization may be able to establish an endowment fund in your name. People often fund endowments through their estate plan, but nothing prevents you from establishing an endowment while you are still alive to see your money go to work.
• If you want to make a substantial gift to support a particular cause or community (instead of a particular entity), you can establish an endowment fund at a community foundation.
• If you are at least 70 1/2 and have an IRA, you can avoid paying tax on up to $100,000 per year by making distributions directly to charities.
• Charitable deductions may help offset the taxes generated when a traditional IRA is converted to a Roth IRA.
• Capital gains tax on stocks, mutual funds, and real estate can often be avoided by donating these assets in kind to certain charities, DAFs and endowment funds.
Of course, you should consult financial, tax and legal advisors before implementing any of these strategies to ensure they are appropriate for your specific situation and executed properly. In addition, I’m sure your preferred nonprofit organization(s) would be delighted to discuss which giving strategies best align with their size, mission and capabilities.
Hopefully creating your own charitable giving plan and maximizing your impact will enhance the inherent joy of giving!
Consider developing your own charitable giving plan using the following process.
First, determine which causes you want to promote. You may have a definitive answer to this question, but some of us need help narrowing our list of causes and gifts. Consider the following questions. What are your core values? What issues are you passionate about? What changes do you want to see in your community?
Second, decide where you want to promote your preferred causes. Your neighborhood? Your city? Clallam County? Your watershed or ecosystem? Is it a nationwide cause? A worldwide cause? If you choose to promote multiple causes, the location and scope may be different for each.
Third, determine the amount of financial resources available for charitable giving. As you think about your core values and your desire to make an impact, you may realize that your spending is not aligned with your values and goals. When was the last time you cleaned up and refocused your household budget? What can you reduce or eliminate in order to increase your charitable giving budget? If you are retired, has your “nest egg” grown more than expected? Consider updating your financial projections to see if you can comfortably increase your charitable contributions.
Fourth, determine the type of financial resources available for charitable giving. Do you have assets with substantial capital gains that can be donated in kind? Do you have large amounts of pre-tax money in individual retirement accounts (IRA) or employer retirement plans? Certain charitable giving strategies may help reduce or eliminate the tax liability embedded in these assets.
Fifth, decide if you want to emphasize your lifetime charitable impact or your legacy charitable impact. If you are in a fortunate financial position, you may want to accelerate your charitable giving so you can see the “fruits” of your philanthropy while you are still alive.
Sixth, assess your answers to steps one through five and determine which charitable giving methods are most beneficial to your overall financial plan. While tax benefits should not be the primary motivation for charitable donations, taking advantage of them can maximize your impact. Here are some specific strategies to consider for your 2021 charitable giving plan:
• All taxpayers can deduct $300 of charitable contributions made by cash or check (itemizing deductions is not required). A married couple can deduct $600 of contributions if they file taxes jointly.
• If you are close to the threshold for itemizing deductions, consider “bunching” two or more years of charitable gifts into one year in order to take advantage of the additional deductions.
• For taxpayers who are able to itemize deductions in 2021, cash contributions made to qualifying charitable organizations of up to 100% of your adjusted gross income can be deducted.
• A donor advised fund (DAF) can be used in combination with the previous two strategies. You can make a substantial contribution to a DAF and take an immediate tax deduction, but then distribute specific gifts to the charities of your choice over a multi-year period. The money in a DAF can be invested and grows tax-free.
• If you want to make a substantial gift to one charity, the organization may be able to establish an endowment fund in your name. People often fund endowments through their estate plan, but nothing prevents you from establishing an endowment while you are still alive to see your money go to work.
• If you want to make a substantial gift to support a particular cause or community (instead of a particular entity), you can establish an endowment fund at a community foundation.
• If you are at least 70 1/2 and have an IRA, you can avoid paying tax on up to $100,000 per year by making distributions directly to charities.
• Charitable deductions may help offset the taxes generated when a traditional IRA is converted to a Roth IRA.
• Capital gains tax on stocks, mutual funds, and real estate can often be avoided by donating these assets in kind to certain charities, DAFs and endowment funds.
Of course, you should consult financial, tax and legal advisors before implementing any of these strategies to ensure they are appropriate for your specific situation and executed properly. In addition, I’m sure your preferred nonprofit organization(s) would be delighted to discuss which giving strategies best align with their size, mission and capabilities.
Hopefully creating your own charitable giving plan and maximizing your impact will enhance the inherent joy of giving!
