Written by Tony Pitzer, Wealth Manager and partner
As families and businesses alike usher in the season of giving, they are met with ample opportunities to spread good cheer (and better yet, their resources) to the causes they care about most. Indeed, almost one quarter of all charitable giving occurs in the month of December, with nonprofits receiving a whopping 5% of their 2022 revenue on the last day of the year!
What should the eager donor or budding philanthropist know about year-end giving? Let’s take a look at the following factors.
First, Define Your Goals and Budget in Flexibility
You’ll be hard-pressed to find someone who has never donated in their lifetime. Whether it’s a round-up donation at the grocery store, supporting a walk-a-thon, or writing a check during the holidays to a food shelter, the opportunities are ample because the need is great.
But there are better ways to contribute, particularly for those looking to weave charitable giving into their legacy planning. However, doing so requires a thoughtful discussion with an advisor to create a comprehensive giving strategy that matches your goals.
Defining your values, interests, and goals for charitable giving is a smart place to start. Similar to how you create a broad financial plan to support retirement, education, and large-scale purchases, understanding what you want to give and why you want to give is critical. The good news is that creating a three-year plan is usually more practical than a five or ten-year plan, and can help non-profit organizations span a budget gap, too.
Consider the fact that most people give to an average of 4.5 charities. If you pick the causes closest to your heart, think about how your money can work harder. For instance, do you want to make a bigger impact for a smaller organization? Will you repeat this giving pattern annually, or adjust each year as needed?
Like anything else, flexibility will need to be built in. When humanitarian crises arise that tug on our heartstrings, or non-profits encounter philosophical shifts that don’t resonate with the donor anymore, (like the donors who recently yanked their funding from Ivy League schools over the Israel-Hamas conflict), donors need room to pivot. More modest planning timelines allow donors to shift as needed by either reallocating funds or employing emergency funds if required.
Match Your Investment Vehicles with Your Charity
You may be surprised to hear that there are better options than writing a check to support charities close to your heart.
The most commonly used investment vehicles in today’s markets are DAFs, or Donor-Advised Funds, which are good if you are giving to qualified charities and don’t want to be responsible for a lot of administrative duties (foundations require you to file tax returns, have board meetings, etc.). For large-scale donations and funding of your own causes, setting up a foundation is the way to go.
Be considerate with what you’re giving. Could you gift a valuable piece of art to the SPCA as easily as to an art museum? Probably not. Working closely with the Directors of Gift Planning can maximize the impact and minimize any headaches for your donations. Many institutions have a gift acceptance policy of what they can and cannot accept. If they don’t have a written policy, make sure you are communicating in advance to maximize the value of your gift.
For any donation to a charitable organization, there are tax benefits. Cash will be itemized and written off against annual income, and giving appreciated assets held for more than a year can provide the same benefit plus avoid capital gains taxes. This article from my colleague explores the numerous tax benefits available.
Make Charitable Giving a Family Affair
At the heart of the matter, giving to charity should be both a feel-good event and a uniquely advantageous business decision that everyone is on board with…that includes your advisor and your family.
Why, you may ask? Just as important as including your advisor in your plans to choose the right investment vehicle is including your family so they are in sync with your wishes. Some vehicles may outlive their donors, so getting the whole family involved in the annual gifting process in advance is crucial in ensuring your goals are met and your legacy lives on.
Consider celebrity couple Ashton Kutcher and Mila Kunis, who have publicly announced they will not leave an inheritance to their children, or members of the Giving Pledge who are encountering an unusual issue of having too much money to give away. Best to mitigate any potential problems before they arrive with transparency and communication.
While many of us will never reach those highest levels of wealth, having real discussions about the impact of charitable donations with the people whom we love and trust is very important.
Timing is Everything
As your philanthropic endeavors continue to grow, moving beyond the question of “how can I help” to “when can I help” is a critical mindset shift that can elevate your donation’s power. Donations historically flood in at years’ end because individuals tend to think of their contributions in a calendar year. Similar to how we wrap up our achievements in December and prioritize the year ahead beginning in January, our money follows.
But what if we stopped and thought about the time of year that a donation would make the most impact? By working with an advisor, individuals can create a timing strategy that matches an organization’s needs as well. Plus, it shouldn’t be overlooked that the end of the year is a busy time for financial planning firms, too. If you want to get the tax benefit this year, don’t wait until the last minute to avoid missing the December 31 deadline.
Make Sure to Maximize Your Impact
If you are new to philanthropy, take care in identifying a reputable charity that’s worthy of support. The Better Business Bureau runs the website Give.org, which allows individuals to independently research 501(c)(3)s to determine their operating status and more. Charity Navigator and GuideStar are also helpful from a spending/governance perspective.
Know that there’s a real and viable way for your money to have a greater impact. When the economy and markets are down, that’s when non-profit organizations need the most support. Consider giving when the times of need are greatest using a comprehensive charitable giving plan and watch your impact reach new heights.
Last but not least, remember that you can deduct anywhere from 20% to 60% of your adjusted gross income for charitable donations. For professional help with reaching your financial and charitable goals, and maximizing your tax efficiency, contact Merit Financial Advisors today!
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Merit Financial Group, LLC, an SEC-registered investment adviser. Merit Financial Group, LLC and Merit Financial Advisors are separate entities from LPL Financial.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized legal advice. Merit Financial Advisors and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specifics