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EDDY & SCHEIN FINANCIAL LITERACY SERIES

Managing Charitable Donations

Have you completed your charitable giving for 2021?

In our years of working with clients, we have observed different reasons for and ways of making donations. What are yours?

  • Are you responding to the emotional pull of a TV ad, phone call, or mailed solicitation?
  • Are you giving throughout the year or only at year-end?
  • Are you purposefully thinking about the organizations to which you want to give?
  • Are you aware of the different tax consequences and are you documenting your giving?

Being conscious of all your financial actions includes charitable giving. There is no right way to approach gifting, but as we have worked with clients, we have encouraged them to be more mindful of their process.

How Much and How to Give
  1. For those who respond to every request (mail or phone) by giving small amounts each time, we have created spreadsheets that demonstrate how often they have given to each organization. In time, many have decided to consolidate their donations to once a year, and the process has often led them to consider which organizations are most meaningful to them.
  2. For clients who want to feel certain that their giving will have the kind of impact they want to make, we work with them to:
    • Research the efficiency of organizations using resources like GuideStar and Charity Navigator to identify what percentage of a gift goes to direct services versus administration and marketing.
    • Decide whether to give small amounts to many organizations, or larger amounts to fewer organizations.
    • Identify reputable organizations that “meet the moment” as in needs arising from pandemics, earthquakes, tornados, etc.
    • Identify what their giving level can be in respect to their personal financial circumstances.
    • As their resources may grow, decide whether to increase giving to the identified organizations or expand the list.
  3. If someone tithes, which means allocating 10% of income, there are other personal decisions to make:
    • Is this 10% based on pre-tax or post-tax income?
    • Will the 10% go to the person’s religious institution or be spread across multiple charities?
  4. More and more not-for-profit organizations are requesting that donors commit to monthly donations through an autopay program. This allows organizations to have a more predictable cash flow, and it might be easier for our clients’ budgets to absorb. Part of mindful giving includes how best to benefit the organization, so we discuss clients’ preferences about their gifting.
  5. To ensure a potential deduction in any given tax year, the gift needs to have been received and processed by December 31.
  6. Online donations have many benefits:
    • Online donations, rather than check-writing, minimize the risk of mail delays or loss of checks.
    • You typically have the option of a credit card charge or a checking account deduction.
    • Using a credit card permits the donor to better manage cash flow between months.
Taxes and Finances
  1. Clients are encouraged to discuss their giving goals with their accountant to determine the tax consequences. A modest level of giving may not lead to a tax benefit. Unless you have sizable medical expenses (over 7.5 % of adjusted gross income in 2021), your accountant likely has not been itemizing donations since the imposition of a $10,000 cap on State and Local taxes and the increase in the standard deduction. Hence, you would not be getting an incremental tax benefit from charitable contributions.
  2. Discussing gifting goals with one’s financial advisor is also useful.
    • If there are low-cost basis investments in one’s portfolio, it might be desirable to give those to some of the charities on your list.
    • If you are 72 or over with an IRA that is distributing the mandated required minimum distribution (RMD) and you don’t need the income, you may decide to gift that RMD to a charity/some charities.
  3. Be aware that some charities also have a political arm that is not tax-deductible.
    • Some clients choose to give a donation to each of the branches of an organization, recognizing that only the 501(c)3 gift will be tax-deductible.
  4. Gifting to political organizations can often be rewarding and important to you, but remember that political organizations are not 501(c)3s and are therefore not tax-deductible.

Americans are extremely generous, more so than citizens of any other country, according to multiple sources. We love to see the generosity of our clients, but we are also aware that circumstances change. As people retire and move into lower tax brackets, they may need to re-evaluate the level of their giving.

Giving mindfully can help many organizations and the people they serve. Reach out to Eddy & Schein Group to help you manage mindful giving and your overall awareness of your financial situation.

Eddy & Schein Group helps:

Tell us what you need.

Call for a free phone consultation.

Serving the Tri-State Area

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