‘Tis the season to give: In fact, about a third of annual giving occurs in December, and 12% during the last three days of the year, according to Charity Navigator.
But if you’re like a lot of people, the idea of donating to charity can be financially painful. So instead of giving until it hurts, you’ll want to give in a way that helps by stretching your bountiful gift with a tax break or in some other way. And you’ll also certainly want to make sure your money goes to a reputable charity.
[Read: New Rules for Charitable Giving.]
To give more to charity this year without breaking your bank, here are some suggestions:
— Ask your employer to match your donations.
— Get a tax break for a cash donation.
— Give within your community.
— Donate stocks.
— Consider donor-advised funds.
— Donate qualified charitable distributions.
— Research charities.
— Consider alternatives to donating money.
Ask if Your Employer Will Match Your Donations
The company you work for can make giving easier, says Pam Krueger, a registered financial advisor and founder of Wealthramp, an SEC-registered advisor-matching platform for consumers.
“Philanthropy is accessible to everyone. It’s now easier than ever to give to causes you want to support — and one area that is often overlooked is your employer,” Krueger says. “More than 26 million Americans work at companies that are willing to match charitable donations you make, yet $7 billion of those matching programs aren’t used because people don’t know these programs exist.”
Many employers sponsor matching gifts programs to nonprofit organizations in which an employee donates to a charitable organization, and then the employer follows up with their own matching donation. Ask if yours does — or if they participate in any donation drives or even offer paid time off to volunteer.
Get a Tax Deduction for a Charitable Donation
The IRS is providing an incentive this year that makes charitable giving easier and more financially advantageous. When the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was passed in March 2020, a temporary change was made that allowed taxpayers to claim a limited deduction on their 2020 federal income tax returns for cash contributions made to qualifying charitable organizations. That deduction was extended through 2021.
What does this mean? If you give $300 (or $600 if you’re married, whether you’re filing jointly or not) in cash — or by check, debit or credit card — you can claim a deduction of up to $300 or $600, as long as it’s made to a qualifying charity. You need to give cash to a charity before 2022 begins.
Generally, tax deductions for charitable giving have been restricted to those who itemize.
“We hope Congress will extend this provision. For now, we hope that everyone knows and makes use of this provision to help a nonprofit in their community,” says Richard Cohen, chief communications officer and chief operating officer with the National Council of Nonprofits in the District of Columbia.
To verify the status of a charity, you may want to use the IRS Tax Exempt Organization Search tool.
Give Within Your Community
Not that the big national or international charities wouldn’t appreciate your help, but Cohen suggests starting in your own backyard.
“Many small nonprofits in local communities are struggling right now with decreased donations, increased costs and increased demand for services. Every donation can make a huge difference for the people who rely on that nonprofit,” Cohen says.
Investors may consider the gift of stocks, which can benefit both the recipient and the giver. “Donating stocks or other securities that have appreciated in value offers a tax benefit to you and the nonprofit organization,” says Melissa Walsh, a certified financial accountant and certified financial planner as well as the founder and president of Clarity Financial Design, a virtual financial planning firm headquartered in Winter Park, Florida.
“When you donated appreciated securities, you are off the hook for any capital gains when the security is sold, and the nonprofit is tax-exempt, so they do not have to pay taxes on the capital gains when the security is sold,” Walsh says. “Additionally, securities held for more than one year and that have appreciated in value qualify for a deduction of their full market value — up to 30% of (adjusted gross income).”
For more information on how the process works, check out DonateStock.com.
Consider Donor-Advised Funds
Donor-advised funds are charitable investment accounts that offer a tax benefit.
“This involves gifting cash or securities to a nonprofit organization through a fund at a charitable foundation,” Walsh says. “You can receive the maximum tax benefit by bunching contributions in a year or series of years and can arrange for the account to pay out during your lifetime or to continue paying out after your death. Additionally, you can advise on which charities ultimately receive the funds.”
Donate Qualified Charitable Distributions
This can get a little confusing, because there’s a short window of time in which you can do this. But you may want to consider donating qualified charitable distributions, or QCDs, suggests Beth Logan, an enrolled agent and owner of Kozlog Tax Advisors in Chelmsford, Massachusetts.
“For taxpayers over 70 years old and six months with pretax retirement accounts, I recommend doing qualified charitable donations,” Logan says. “By pretax retirement accounts, I mean traditional IRA, 401(k), and 403(b), and SEP IRA, SIMPLE IRA and any other retirement where the contributions were pretax or deductible on a tax return. Roth IRA and Roth 401(k) do not qualify.”
Got that? Well, Logan says taxpayers over 72 must take required minimum distributions, but taxpayers can do QCDs starting at 70 1/2.
“Therefore, if the client wants to withdraw from their IRA between 70 1/2 and 72 years old, then QCD works,” Logan says. “If the taxpayer didn’t plan to withdraw during that time, then it doesn’t make a difference. Once the taxpayer turns 72 and RMDs are required, a QCD is beneficial.”
And why is a QCD beneficial? “QCD allows the taxpayer to have money taken from their IRA and paid directly to the charity,” Logan says.
Do your due diligence and make sure you’re donating to a reputable charity. But you can go overboard with your research and draw the wrong conclusions.
Cohen says that you shouldn’t make financial ratios a primary focus for evaluating a nonprofit. That’s where you see that a particular nonprofit you’re interested in donating to has an overhead of 30% while another only has 10%. So you decide that the charity with 30% overhead must be bad with money, and you give to the one that only has 10% overhead.
“This outdated method of evaluation referred to as ‘the overhead myth’ is even less helpful now as so many nonprofits had significantly higher overhead costs this past year for technology to deliver services virtually,” Cohen says. “Or, if they provide a service that required them to remain open, (there may be) costs for reconfiguring their space, for extra cleaning, for protective equipment for staff, volunteers and the people they serve, and much more.”
In other words, the pandemic has raised the overhead for a lot of charities, so you may want to cut them some slack.
Instead, Cohen says, “Focus on the impact the nonprofit is making. Focus on a cause that matters to you. Whether that is finding homes for animals, providing shelter, enriching lives through the arts, or almost anything else you can think of, there is likely a nonprofit working on that issue.”
Consider Alternatives to Donating Money
For example, you could donate time at a soup kitchen or volunteer at a youth mentoring service like Big Brothers Big Sisters of America. You could donate time teaching someone to read. On the National Literacy Directory website, you can search for a literacy group in your area. Or maybe you’d like to help out an animal shelter.
Just about every local charity could use volunteers.
Other options include donating gently used but quality clothing and furniture to a consignment store, or even donating blood.
Giving to charity definitely doesn’t have to be about writing a big check.
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Update 12/08/21: This story was published at an earlier date and has been updated with new information.