In the full scope of managing money, people want to know that the money they donate to charitable causes makes a difference.
Unfortunately, you can’t just cut checks to any old charity and expect great results. If you want to make a difference, you need to ensure that your charitable contributions make a legitimate impact.
But how can you do that?
It starts with studying charities you’re interested in to determine whether your gifts will be used to further a mission you care about or whether the nonprofit spends the majority of donations on overhead costs and business expenses. According to the Better Business Bureau, at least 65 percent of the funds an organization raises should go toward programs.
Need some help on figuring out which high-impact charities to donate to? GiveWell has aggregated a list of the most cost-effective, evidence-based charities. Check it out to get some ideas of organizations to support.
Even if you have some charities picked out, you may want to spend some time researching and devising a plan to ensure you make the most of your money. Keep reading to learn how to donate to charity effectively.
How to Donate Effectively
Think back to the time you bought your first house or car. You likely didn’t go to a single open house and immediately make an offer. Similarly, chances are you didn’t go to the closest dealership and purchase the first shiny sports car that caught your eye.
Instead, you likely spent several hours, days, or even months studying the real estate market, learning about communities and mill rates, and inspecting every nook and cranny of houses that piqued your interest. The same idea holds true for what you did to prepare to buy a car.
To effectively give to charity, you need to research and determine how to make the highest impact with your contribution. In addition to deciding the causes you want to support, there are many other things you will want to consider. Here are some steps to take before making a charitable donation:
1. Select charities that mean something to you and your family.
First things first: You need to consider the charities and causes near and dear to your heart. Maybe your mother suffered from Alzheimer’s disease in her later years. Or maybe a trip to a remote African village introduced you to kind-hearted folks living in severe poverty, and you wish you could help. Or perhaps you want to help find a cure for cancer.
Whatever the case may be, you need to identify charities that could be potential matches for the causes you and your family care about. Getting your family aligned around a cause can be an opportunity for bonding.
To do this, you need to consider three factors: the scale of the problem, how neglected the cause is, and whether the cause is solvable or more of a pipe dream.
Once you have narrowed down causes, it’s time to research charities focused on addressing the concerns you care about. Luckily, there are many tools you can use to find legitimate charities. To get started, check this out.
2. Automate your donations if possible.
Making the biggest impact with your charitable giving is only possible when you donate as much money as you intend to. Instead of telling yourself that you’re going to donate a certain amount this year, why not automate your donations to ensure that those funds are automatically transferred to the charities you care about?
By automating your giving, you eliminate the chance you forget to donate. Not only does this help the nonprofits you support improve their cash flow, but it also ensures that you meet your giving goals for the foreseeable future.
3. Research your options and find the tax benefits.
Charitable contributions can lower your tax burden. However, to take advantage of this tax benefit, you need to itemize your taxes.
According to Fidelity, qualified individuals can deduct up to 60 percent of their adjusted gross income via charitable donations. If you’re planning to donate appreciated assets (more on this in a bit), you can deduct up to 30 percent of your adjusted gross income.
It’s also worth noting that IRS rules enable you to make qualified charitable distributions after you turn 70½. Because you’re required to withdraw money from these accounts anyway, you might consider moving these funds to charitable causes to make a higher impact.
Additionally, you may also want to look into setting up a charitable remainder trust. That way, you can make regular gifting part of your legacy.
4. Consider donating appreciated assets.
When most people think about donating to charity, they think about dollars and cents. But your giving doesn’t have to be solely confined to money.
For example, if you have a robust stock portfolio, you may want to consider donating appreciated shares of stock to your favorite causes. This provides two benefits: You can potentially eliminate the capital gains taxes you would otherwise have to pay, and you may also be able to deduct the fair market value of your shares when tax time comes.
Taken together, this is another tool you can use to increase the impact of your giving.
5. Become familiar with all of the assets you can give.
When most people think about donating appreciated assets, they think about publicly traded securities (i.e., the stocks, exchange-traded funds, and index funds most investors have in their portfolios). But you don’t have to box yourself into that line of thinking.
There are plenty of non-cash assets you can donate to charities, including:
- Real estate investments
- Private business interests
- Cryptocurrency (e.g., Bitcoin and Ethereum)
- Restricted stock (Rule 144)
- IPO stock options
- Fine art and other collectibles
- Private equity fund interests
If you have classic cars sitting in your garage, why not look into donating one of them?
6. Talk to a financial advisor.
Making the most of your charitable contributions is a tall order. But just because it might be complicated doesn’t mean you have to go it alone.
This might be your first time donating to charity. But financial advisors have seen it all before. The right financial advisor can walk you through a tax project to estimate how much of a tax benefit you can get from donating to charity—and where your deductions will be capped out based on your adjusted gross income.
In this light, partnering with a financial advisor might be the most critical piece of the puzzle when maximizing your philanthropic efforts.
Make an Impact as a Philanthropist
Making an impact as a philanthropist requires more than cutting checks to the first charity that piques your interest. If you want the best results, you need to conduct your due diligence, research the ins and outs of effective charitable giving, learn about the available options, and determine which strategies work best for your unique financial situation.
Although it’s possible to get your charitable contributions in order without the help of a financial professional, joining forces with an advisor will make the process much easier. After all, you might be new to donating to charities, but advisors have worked with countless people just like you and can offer insights into what you can do to get the biggest bang for your buck.
Ready to learn more ways to make an impact with charitable giving? EP Wealth Advisors have experience assisting clients with a wide range of charitable objectives. Take a look at our Charitable Giving services today.
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