People give to charity for many heartfelt, altruistic reasons. Yet, compassion and careful, intelligent gifting can go hand in hand. To maximize the impact of charitable gifts, a donor may want to formulate a giving plan and consider the following:
Identify your goals: Do you want to support local community needs or address global issues? Think about which charities you have traditionally supported and why. Thoughtful, targeted giving can have more of an impact than reactive donations to fundraising requests. By identifying your goals, you can do more for the causes about which you are passionate.
Do your homework: Take time to identify charities whose goals match your personal priorities. Look for nonprofits that clearly state their mission and offer evidence of the progress they have made. Remember, to qualify for a tax deduction, your donation must be received by a qualified charity, so you will want to confirm the charity's 501(c)(3) status. Websites such as www.give.org, www.charitywatch.org and www.charitynavigator.org are useful for researching individual charities and comparing one charity to another. Consider the portion of the organization's budget that is directed toward the philanthropy's objectives, as opposed to administrative expenses. Many nonprofits file a Form 990 with the IRS, which details staff salaries, revenues and sources of funding. According to www.charitynavigator.org, "The most efficient charities spend 75 percent or more of their budget on their programs and services and less than 25 percent on fundraising and administrative fees."
Identify the best method of giving for your circumstances: By working with a tax specialist or financial adviser, you can explore methods of doing well and doing good. Direct giving, charitable trusts and private foundations all serve as good options under different circumstances.
However, if you want to give $5,000 or more, many conclude that a Donor-Advised Fund, or Charitable Giving Account, is a user-friendly option that offers many advantages allowing you to maximize your charitable contributions and be tax smart.
A Donor-Advised Fund is an easy-to-establish, low cost, flexible account for charitable giving. With one contribution of cash or securities, you can support multiple charities. Contributions into a charitable gift account are irrevocable; the donor receives tax benefits in the year of the contribution, even if the money is retained for later distribution to charity. This can be a particularly effective strategy in years when your income is higher than normal.
Additionally, assets invested in a charitable gift account grow tax-free, so your investments will go further in supporting your future giving. Online tools and reports provide for simplified recordkeeping and a streamlined summary of all your giving.
Many Donor-Advised Funds allow for gifting long-term appreciated assets, which enables you to avoid paying capital gains on the appreciation of the donated asset and, in most cases, receive a deduction for the full market value (subject to IRS limits).
Social needs and charitable requests invariably tug at our heart-strings. By choosing the right giving strategy for you, you can optimize your charitable contributions -- for your charities and for you.
Valerie Connolly, CFA, is a senior investment adviser with HTG Investment Advisors, an independent fee-only advisory firm in New Canaan. She will be discussing charitable giving strategies at the Lapham Center in New Canaan on March 5. For information, call 203-972-8262 or visit www.htginvestmentadvisors.com.