Making charitable donations can be highly rewarding and emotionally fulfilling. For example, Many Americans received a great emotional return on their charitable investments recently after donating to relief efforts for victims of Hurricanes Harvey and Irma.
But giving away money effectively isn’t as easy as you might think. There are some technical points you’ll need to consider so you can take full advantage of available tax deductions and be sure that you give in ways that make the most sense for your financial situation.
Here are some points to keep in mind:
Thoroughly research any charity you are considering. Let your fingers do the walking through Google to make sure the organizations you have in mind have an established record of legitimacy and aren’t questionable entities focused on raising money for Bogus National Bank. And even when you determine that a charity is legitimate, you still may not want to contribute if unnecessarily high costs keep too much of your money from reaching the intended recipients. For a view of the charity’s finances, see if its website carries its IRS form 990. Also, make sure the charity’s tax status is 501(c)3. If not, your contributions probably won’t be tax-deductible. Charities’ websites should tell you if they have this status, but you can make sure by going to IRS.gov/charities and clicking on “Exempt Organizations Check.”
Next, investigate whether the organization is efficiently meeting its goals by consulting independent websites such as GiveWell.org, CharityNavigator.org and CharityWatch.org. Highly efficient charities spend less than 10 percent of the money they receive on fundraising and administrative costs. Less efficient charities may spend several times that much.
Just say “no” to telemarketing contractors soliciting on behalf of charities. They will take a chunk of your donation, so it’s better to contribute to charities directly.
Contributions to 501(c)3 organizations totaling up to 30 percent of your adjusted gross income may be fully tax deductible if you itemize deductions on your tax return. To be sure, it’s a good idea to check with a tax advisor.
You may be able to reap additional tax savings by giving appreciated assets, such as stock that’s risen in value. Ideally, it’s not a good idea to donate shares on which you’ve lost money. Instead, sell the shares, potentially taking a tax deduction on the loss, and then donate cash, which may afford another tax deduction. By donating appreciated shares that you’ve owned for more than a year, you may avoid the capital gains tax (because you never sell the shares).
If you want tax savings now but aren’t sure which charities you want to support, consider a donor-advised fund. These funds enable you to get investment gains on your money for years while deciding which charities deserve it. Again, it’s ideal to donate assets that have built-in long-term gains. As with assets held outside of such funds, if you have a loss, consider selling the assets, taking a tax deduction on the loss (if eligible) and donating cash. Many large investment companies offer donor-advised funds.
Helping those in need by donating to qualified, efficient charities can be rewarding in ways you never imagined. And as a side benefit, this can also serve as a wise tax strategy.
This content is based upon information believed to be accurate by ISI Financial Group, Inc., and is not intended to provide specific financial advice. Always seek professional guidance before making any financial or legal decisions.
