Maximize your charitable giving
The Tuesday after Thanksgiving has become known as Giving Tuesday, when people are encouraged to donate to charitable organizations.
If you’d like to take part in this special day, you’ll want to maximize the effectiveness and benefits of your charitable gifts. So, consider these questions:
Is the charity reputable? Does it use its resources wisely? Most charitable organizations are honest and dedicated to helping their specific causes. But sometimes there are a few “bad apples” in the bunch. These groups aren’t necessarily fraudulent (though some are), but they may spend an inordinate amount of their donations on administrative expenses, rather than directing this money to where it’s most needed.
Fortunately, you don’t have to guess about the trustworthiness or the efficiency of a particular group, because you can check on it.
To make sure that a charity is an actual charity – one that is tax-exempt and listed as a 501(c) (3) organization – you can go to www.irs.gov, the website of the Internal Revenue Service, and hit the “Charities & Nonprofits” link. An organization called Charity Navigator (www. charitynavigator.org) tracks charitable groups’ financial health and accountability, including how much is spent on administrative and fundraising costs.
Generally speaking, a charitable group that dedicates more than about 30% to 35% of its total costs to administration and fundraising expenses might be considered somewhat inefficient, though you’d want to evaluate each charity individually, since extenuating circumstances can occur. Keep in mind, though, that smaller charities may not have the same resources as a national organization to provide the reporting necessary for Charity Navigator.
Will my employer match my contribution? You can make your charitable gift go a lot further if your employer matches it. Typically, companies match donations at a 1:1 ratio, but some will match at 2:1 or even higher. Check with your human resources department about your company’s policy on charitable matches.
Are my charitable gifts tax deductible? A few years ago, Congress significantly raised the standard deduction, which, for the 2021 tax year, is now $12,550 for single taxpayers, $25,100 for joint filers and $18,800 for heads of household. As a result of this increase, many people no longer itemize and thus have less financial incentive to make charitable contributions.
If you still do itemize and you’re thinking of making charitable gifts, you generally have a choice between giving cash and another asset such as stocks. Each type of gift could earn you a tax deduction, but a gift of appreciated stocks could be more beneficial because you may also be avoiding the capital gains tax you might incur if you eventually sold the stocks. You should consult with your tax advisor and the charity (not all accept investments) before making the cash-versus-stock decision.
Even if you don’t itemize, you could still get a tax benefit from making a charitable contribution. That’s because Congress has extended part of the COVID-19-related legislation that allows taxpayers to claim charitable deductions of $300 (for single filers) or $600 (for married couples) if they claim the standard deduction. The charitable donations must be made in cash, not stocks.
Giving Tuesday comes just once a year, but your gifts can have lasting benefits. So, be as generous as you can afford – and enjoy the good feelings that follow.