Believe it or not, countless studies prove that we experience a happier, healthier life, are more joyful and experience improved mental health when we give. Generosity was once believed to be a completely selfless act. And while it still is, scientists have discovered that the person being generous may receive just as many benefits as the person receiving the generosity. Financial planning and philanthropy can also have its benefits.
However, before you start donating your possessions to charity, here are 5 things to think about:
1. Determine How Much You Can Give
In 2018, 68 percent of all charitable giving came from individuals – more than foundations, bequests and corporations combined.
But before you give, evaluate your budget to determine how much you can give. This will vary from person to person depending on your current financial obligations and long-term goals.
One popular budgeting rule that accounts for charitable giving is the 50/20/20/10 Rule. It states that:
- 50 percent of income goes to living expenses (rent, groceries and other essentials)
- 20 percent goes to discretionary spending (things you want but don’t need)
- 20 percent goes to savings and debt
- 10 percent goes to charitable giving
Will this rule work for everyone? Probably not. So it’s important to discuss your giving goals with a financial advisor when evaluating your own budget. Remember, everyone’s situation is unique and there are no one-size-fits-all solutions when it comes to financial planning. Calculate your spending, prioritize saving and then mold giving to fit your needs.
And don’t worry if you’re not able to give a sizable chunk of money every month. Even the simple act of buying someone a $5 meal can bring joy to a person who needs it.
2. See If You Can Donate More Than Money
If donating isn’t in your budget at the moment, or you simply can’t give as much as you’d like, consider other ways you may be able to donate to charity. For example, can you offer:
- Organizations need people who are physically present. Are you able to volunteer at a local food bank, animal shelter, senior center, homeless shelter or any other cause? Contributing time can be just as valuable as cash for a lot of organizations.
- Do you have any financial assets you want to give away (i.e. inheritance or an investment account)? Discuss your plans with a financial advisor and ask about transferring something specific to a charity of your choice. Do you have any physical assets you don’t use (i.e. an old car, coin collection or valuable vintage item)? Donate it to a charity in need and you may be able to deduct the fair market value from your taxes.
- Use your skills and work pro-bono for a charity. For example, if you’re a CPA, can you do a charity’s taxes. If you’re a writer, can you help an organization with an upcoming grant proposal. If you’re a photographer, are you able to take photos for a nonprofit’s website and publications. Almost every charity has specialized needs they can’t afford to hire someone to do. Offer to fill in the gap for free.
If you’re stuck on ways to help, call a charity you’re passionate about and ask what they need most. They could need something you haven’t even thought about. A local women’s shelter, for example, may need volunteers to help women create resumes and apply for jobs more than they need clothing. A food bank may need help distributing food more than they need canned goods. You won’t know until you call.
3. Identify Charities You’re Passionate About
What charities do you care about? Which ones tug at your heartstrings and light a fire inside of you? It’s not a bad thing to give to any old charity, but you may get more meaning out of giving if it’s something you care about.
Maybe you’re passionate about curing leukemia because your brother had it as a child. Maybe you’re passionate about sustainability. Whatever it is, give to a cause that means something to you.
If you need help pinpointing an organization that matters to you, answer these questions:
- Who do you want to support? (Minorities, children, single moms, the elderly, animals)
- What places do you want to support? (The local community, your home state, another country)
- What problems do you want to solve? (Inequality, access to clean drinking water)
- What pathways will help you solve them? (Advocacy, direct service, education)
- What philosophies guide your life? (Religion, spirituality)
Use these answers to find a charity that aligns with your values and beliefs.
4. Investigate Charities Before You Give
It may be OK to give one-off donations to a charity on Facebook or a random GoFundMe page, but you’ll want to do thorough research if you plan to give sizable contributions.
Those who are serious about charitable giving should thoroughly research organizations to ensure their funds will be used responsibly. Look into an organization’s tax status, examine old tax forms and evaluate ways it uses the donations it receives.
A good rule of thumb is to look for charities that are tax-exempt with the IRS. Be leery of giving to any organizations that don’t have this tax status. These organizations may not be regulated and you won’t be able to deduct donations from your taxes.
Talk with a financial advisor about donating to specific nonprofit organizations.
5. Consider Potential Tax Deductions
Charitable donations can be tax-deductible, but you likely won’t see any real tax savings unless the total of all your itemized deductions exceeds the standard deduction limits for 2019, which is $12,200 for individuals and $24,400 for couples.
Examples of itemized deductions include, but aren’t limited to:
- Medical and dental expenses
- Insurance premiums
- Home mortgage interest
- Charitable giving to a qualified tax-exempt organization
Those who wish to claim charitable giving on their taxes must itemize their deductions, but this is typically only in your best interest if your total itemized deductions exceed the standard deduction limit.
If you suspect the total of all the items listed above is more than your standard deduction limit, you may get a tax break from charitable giving.
Itemizing deductions can be tricky, so, unless you specialize in tax law, we recommend finding a trusted professional who can help you sort through this part. Your financial advisor may be able to recommend someone.
The Bottom Line
Generosity takes on many forms, including donating your money, time, assets and expertise. At PAX Financial Group, we can help clients craft a financial plan that empowers them to generously support the people, causes and organizations they care about long after they’re gone. If you’d like to talk more about financial planning and philanthropy and how you can make charitable giving part of your regular routine, contact us today.
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