- America is the most charitable nation in the world.
- Before donating, use readily available resources to research specific organizations.
- Understand what giving means to you and what causes are most important.
- Most charities accept a wide variety of donations; some have significant tax savings for the donor.
Thanksgiving has long been the unofficial start of the December holiday season, with shoppers fueling up on leftovers before kick-starting the holiday shopping spree on Black Friday.
But in between the turkey sandwiches and pumpkin pie, many Americans pause to share their good fortune with others in the form of charity, centered around the Tuesday after Thanksgiving. That day has been known as Giving Tuesday since 2012. This year, it lands on Tuesday, November 29th.
If you’re thinking about donations of cash or other items, follow these tips to ensure you and the organization(s) you’re supporting get the maximum benefit from your generosity—whether on GivingTuesday or any other day of the year.
What is GivingTuesday?
GivingTuesday is “a day that encourages people to do good.”
According to the nonprofit’s site, it’s an “inclusive and pluralistic community of millions of givers, with activity in every country on every continent.” The philanthropic organization boasts a network of over 70 countries across the world.
Now in its tenth year, GivingTuesday was formed in a New York City YMCA to offset the spending generated by Black Friday and Cyber Monday with charitable donations to those in need.
Whether you choose to donate time, money, or other goods on the 29th (or any time), here’s how to ensure you and the organizations you support get the maximum benefit from your generosity.
How to Give on GivingTuesday
The first step towards smart giving is to check if your employer will match your donations or if a donor will match a portion of your contributions. That can supercharge your donation's impact without costing you an extra penny.
The second step is to vet any charity before donating. To do this, check out this search tool on the IRS site. Here you can find out if a charity is a legitimate 501(c)(3) nonprofit and view tax returns and other important information.
To check on how much an organization spends on its mission and how much goes to salaries and other expenses, you’ll find unbiased information at the Better Business Bureau Wise Giving Alliance, Charity Navigator, Charity Watch, and Guidestar. Just make sure to pay close attention to the following:
- The percentage of donations spent on programs vs. amounts allocated to other costs.
- The efficiency of the organization’s fundraising (typically measured by how much it spends to raise $1).
- Salaries for top executives and staff.
- Whether the organization is current with its tax returns and other IRS filings.
Many organizations have similar names, so don’t be fooled by a soundalike. Keep in mind that if an organization spends a lot of expenses and less on programs, chances are there are organizations with similar missions that are more efficient in their spending.
Once you’ve vetted potential organizations, it’s time to decide how, when, and how much to give.
Design a Giving Plan
As with other aspects of financial planning, philanthropy works best when it’s backed by a strategy. That means having a plan.
To start building yours, ask yourself these important questions:
- How does giving fit into my overall financial planning?
- What are my goals, and why am I giving?
- What nonprofits and causes have I typically supported? Should I stick with them or switch them up?
- Which recent gifts have been most closely aligned with my values?
- How have my life experiences inspired my charitable giving decisions?
- What results am I seeking when I give?
- Have I made contributions that have given me great satisfaction?
The answers to these questions will be the basis for this year’s (and future) giving.
Choose What to Give
Nonprofit organizations vary in what they’re equipped to accept, but virtually all can gratefully receive:
- Cash (check or credit card)
- Investments - mutual funds, Exchange-traded funds (ETFs), stocks, and bonds
- Property - like clothes, furniture, and even vehicles
Two cautions on donating a vehicle:
- Make sure the nonprofit is a 501(c)(3), or your tax deduction will be invalid.
- Find a charity that accepts vehicle donations directly.
Unfortunately, many charities that accept vehicle donations use a third party to sell the donated vehicle, and the organization only receives a fraction of the proceeds. So, before donating a vehicle, double-check how much your donation will actually benefit the organization.
If the organization sells your donated vehicle, pay attention to the sale price. If your vehicle sells for more than $500, you may deduct the full selling price as a donation on your tax return. If your vehicle sells for $500 or less, you can deduct the “fair market value," up to $500.
Two types of donations can result in a large tax deduction with little or no out-of-pocket expenses:
- Capital Gain assets. You can often donate shares of stock to a charity. Because it is a tax-exempt organization, neither the organization nor you will owe tax on the sale. For example, let’s say you bought $1,000 worth of stock that eventually grew to $5,000. If you later donate that stock to charity, no taxes will be due on the $4,000 in capital gains. Keep in mind that you must not sell the stock and donate the proceeds to the charitable organization. This will cause a taxable event and you will owe capital gains tax. Instead, transfer the stock to the charity and have them sell it to avoid taxes for both parties.
- Qualified retirement plans. At your death, whoever inherits the retirement plan money will owe income tax unless they are a tax-exempt entity. So if you plan on making a gift when you pass away, there’s a huge tax saving if you leave life insurance to family and retirement assets to charities.
Get the Tax Benefits
Individuals who itemize could deduct up to 100% of their adjusted gross income in 2021, but that temporary ceiling was not extended for 2022. The maximum deductible for tax year 2022 has reverted to 60% of gross income. IRS Publication 526 is updated annually with that tax year’s information. This deduction is only for public charities; donations to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are capped at 30% of adjusted gross income.
Making the most effective use of charitable donations and maximizing their value for both you and the recipient(s) requires a well-thought-out strategy.
A CFP® professional from Facet Wealth can help you incorporate philanthropy into your overall financial planning and gain the most benefit from your giving.