As we move into the final months of the year, many people consider giving to charity. There are so many good causes: cancer research, disaster recovery, food insecurity and many others. And the need is great.
How do you decide what to give and to whom?
- It all starts with you – What are your values?
If you know me, you may know that my dad passed away many years ago from cancer. I never thought much about it during my growing years. As I got older, I learned about friends and relatives in their 40s and 50s who were diagnosed with cancer. That made it more real.
In 2011 I started working with cancer patients and their families as a financial coach through the Dana Farber Cancer Institute. Initially I resisted getting involved. Working with patients that are often dying and facing financial ruin did not seem like a pleasant experience. But when I met my first patient family, I quickly realized how important my coaching was to them. So, it came naturally that Rick and I decided to make a financial commitment to Dana Farber which we have made every year.
As you think through the charities that you have given to, they are a reflection of your value system.
When I was younger, I sometimes would give to causes because a friend asked. With time I have learned that giving is not a favor or a way to get the telemarketer off your phone—it needs to come from your heart. It also needs to be linked to you through some direct engagement such as volunteering. When both are present, the gifts are meaningful.
- Find a charity that uses your money wisely
Once you have identified a charity, you should find out how well they will use your money. For example, some charities have high overhead or administrative costs. At some charities that can mean less than $50 of your $100 donation actually goes to the thing that you thought you were donating to. The rest goes to pay for solicitors, marketing, and administration. A good resource to better understand your charity and its effectiveness is www.CharityNavigator.org They rate charities on a range of criteria so that you can make the most of your donation.
- Consider the best way to give
Cash, check or charge, right? Well, maybe. If you own highly appreciated stock, there may be a better way. When you give cash, you may be able to take a tax deduction for it if you itemize your deductions on your tax return. By giving appreciated stock instead of cash you may be able to take a deduction and also eliminate potential capital gains tax that you might otherwise pay later when you are selling stock.
With the passage of the Tax Cuts and Jobs Act in 2017 many filers who used to itemize deductions have found that taking the standard deduction makes more sense. For filers that are close to that threshold but still under, there is another option—bunching deductions—including charitable contributions.
For example, if you give $2,000 each year to charity X, you could give $4,000 every other year if that helps you to qualify for itemized deductions in those alternating years. Another and increasingly popular way is to make a gift to a donor-advised fund. More on that later.
- IRA / 401(k) owners age 70.5 / 72+
If you are over age 70½ and taking Required Minimum Distributions (RMDs) or will turn age 72 in 2021, you may be able to make a Qualified Charitable Distribution (QCD) instead of taking your RMD. The advantage here is that the donor has more certainty that their gift qualifies for a tax-deduction and the donor may be able to reduce the amount of taxable income generated by an RMD. There are limits and rules, e.g., the maximum QCD is $100,000, so be sure to check with a tax professional first. Special note for 2020 only: RMDs are not required this year but you can still make a QCD.
- Be wary of unsolicited phone calls, texts or emails
With the end of the year being giving season, it is also the time of year when scammers are in full swing. If someone is calling you, texting you or emailing you for a donation, consider these questions:
- Do you recognize the charity?
- Have you donated to them before?
- Are they pressuring you to give immediately?
- Are they offering a gift if you make a donation?
If the answer to any of these questions is questionable, hang up or delete the message (do not click on any link in the message). That caller from the animal rescue society who has a story of pets living in squalor may be heart-wrenching to hear but it is better to take a pass and do your research first before giving. If in doubt, hang up and research the charity first. Then decide if they are legitimate or not.
In addition, you should never give out your credit card number to someone who calls you, unsolicited. Too often it is a scam.
Giving is really important to charities this year as many have been unable to fundraise the way they did before the coronavirus. Do what you can but be cautious of anyone who contacts you.
If you have additional questions about the best ways to give, give us a call. We’re here to help.
Lyman H. Jackson
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.