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According to the National Philanthropic Trust, in 2021, the largest source of charitable giving came from individuals who gave $326.87 billion, representing 67 percent of total giving.
Contributing to charitable organizations can be heart-warming and financially beneficial. However, charitable contributions should be well-thought and always fit into your financial plan.
An attitude of gratitude.
Donors who make lifetime charitable gifts have the pleasure of seeing how their generosity benefits a favorite charity.
"Anyone affiliated with a not-for-profit organization – whether through annual giving, volunteering, or serving as a board member – should consider philanthropic giving," said First Interstate Wealth Advisor Kristin Wilkerson.
She recommends clients begin by asking themselves some critical questions:
- What organizations or issues do you currently donate to or care about?
- What matters most to you when donating to an organization?
- Do you want to see your gift have an impact during your lifetime, or do you want to leave a legacy for many years after your death?
- What assets do you want to use when donating to an organization?
Knowing where your heart lies and the change you want to see in the world can guide donor decisions.
In addition to supporting personally rewarding causes, charitable giving can be a financially beneficial way to leave a wealth legacy.
"Year-end giving may provide the donor with opportunities to take advantage of tax benefits, whether it be through a charitable distribution from your IRA, through donating appreciated stock, or through combining annual gifts into a single year to allow the donor to itemize on their tax return," said Wilkerson.
Your heart is in the right place, but is your money?
Before you write the check, due diligence is in order.
"Charities must be 'qualified' for federal income tax purposes to receive tax-deductible contributions,” Wilkerson cautioned.
Only some charitable causes are set up as 501c3 nonprofits with the federal government. And this designation matters because it's the only way to receive the tax credit from your donation.
A good place to start is by asking the nonprofit for their 501c3 certificate and tax ID number. A legitimate charity will give you information about its mission, how your donation will be used, and proof that your contribution is tax deductible.
You can also check an organization's eligibility to receive tax-deductible charitable contributions through the IRS.
"The deductible amount varies based on a variety of factors, including the type of organization, whether the gift is cash or other appreciated property, and what the client's adjusted gross income is," said Wilkerson.
Additionally, always ask for a receipt and save it for tax time.
Expressing your intent.
Sometimes referred to as restricting a gift, donors can specify how they want their contribution used.
"If the client wants to support a certain project or component of a nonprofit organization, they need to make sure their intent is clearly articulated to the organization," Wilkerson recommended.
The effectiveness of a gift may be blunted if it is restricted too narrowly. Too broad, and the donor's intent may not be met. This calls for a candid conversation with the nonprofit about how the proposed gift restriction fits within its mission and program objectives.
Charity Navigator is an established charity evaluation tool that scores larger charities in the country and lets you see how much of their annual donations go toward funding the people and programs. Smaller nonprofits might not be listed there, but the tool can still help donors understand what questions to ask about how they want their money used.
Bring your values and vision to life.
Once you've settled on the right charity to carry out your philanthropic vision, it's time to consider a vehicle for giving. The options might surprise you.
"There are many ways to make an impact. Donors can utilize charitable distributions from IRAs, a Charitable Lead Trust, Charitable Remainder Trust, or bundle gifts for tax deduction purposes," Wilkerson said. "It can be a lot to navigate, so an experienced financial professional can add value in guiding this conversation and decision."
It’s important to thoroughly evaluate the financial implications and benefits.
"We work with a wide variety of clients on charitable planning and regularly incorporate charitable giving in our wealth planning conversations," assured Wilkerson. "We offer trustee services to administer charitable lead or charitable remainder trusts. We can also assist clients with other accounts to accomplish philanthropic goals."
Gift planning allows donors to witness the impact of their generosity and provides attractive income tax advantages, which often afford donors the opportunity to make even greater contributions to charitable causes. That's a win-win for donors and charities alike.
Ready to make a gift that keeps on giving? Our team of skilled Wealth Advisors is prepared to assist you in transforming your wealth into a legacy that ripples through generations.