Beyond the Basics: End-of-Year Charitable Giving

Beyond the Basics: End-of-Year Charitable Giving

A jolly mood encompasses society in December. The gift-giving culture becomes top of mind for families, friends, and colleagues. You’ll also hear a familiar ringing when around town: the bells of Salvation Army volunteers next to their red cauldrons. Instead of giving your loose change as your way to make an impact, consider how you can strategize your philanthropic efforts before year-end. Your tax plan may also thank you.

December is only one of the twelve months of the year, but, according to Nonprofit Source, 30% of charitable giving takes place in December. I personally credit two reasons for this statistic:

1. The “goodwill toward all people” vibe during the holiday season
2. Tax advisors

Throughout this article, I’ll share some strategies so you can consider to …

a. help your charitable dollars go further,
b. potentially decrease the amount of taxes you pay, and
c. help you feel tax-savvy and that you’re making a larger impact on the causes important to you.

Charitable Dollars Go Further: Double Your Donation

The good news: Employees give an estimated $2-3 billion annually through employer charitable matching programs.

The “let’s do better” news: $4-7 billion in matching gifts goes unclaimed every year.

Source: Double Your Donation

This strategy provides a “quick win” to make a bigger impact. Look at your employee benefits guide to see if your employer offers any matching charitable donations. If available, coordinate with your human resources team to see if your employer will match any of your prior donations. Otherwise, aim to have them match any future contributions before year-end.

Decrease Your Taxes: Bunching Your Charitable Donations

Will you be itemizing your deductions this year? If so, consider donating to charity — and enjoying the potential tax benefit. It could be a win-win. To claim a deduction on a charitable contribution, keep in mind you’ll have to itemize deductions, which must exceed the standard deduction.

• For itemizers: There’s a 60% Adjusted Gross Income (AGI) limit on deductions for cash donations.
• For non-itemizers: Consider another strategy called bunching. 

Even if you take the standard deduction, you may have a charitable and tax planning opportunity for itemizing your deductions by bunching your charitable donations. Bunching means you contribute at least two years’ worth of deductible expenses in one year. This allows you to increase your itemized deductions beyond the standard deduction. To see how this strategy can decrease your taxes due, check out this video of me using the free Schwab Charitable Bunching and Tax Savings Calculator:

Pro Tip: Consider donating multiple years’ worth of your charitable contributions to a donor-advised fund. This charitable giving vehicle then allows you to space out your charitable donations over multiple years all while claiming a higher tax deduction in the year you made the contribution to the donor-advised fund. 

For more, check out my article Donor-Advised Fund: 6 Reasons Why I Like Having One.

Offset Taxes from Roth Recharacterizations

This year’s market performance has been … well … it’s been better. However, a silver lining to down markets is that it presents an opportunity to convert part or all of your pre-tax IRA to your Roth IRA.

With the belief and faith that the market will go up over time, stocks recently pulled back around 20% of their value. This means that, if you converted the money in your Traditional IRA to your Roth IRA, you just converted money at a lower price. With a long-term time horizon, you can hope that the markets will recapture that 20% — and then some.

The downside to IRA conversions is that you have to recognize the money converted as ordinary income. So you’ll have a higher taxable income for 2022 without earning more money. A way to offset the amount of taxes due is by increasing your charitable contributions. You can use bunching and also a donor-advised fund to coordinate this strategy.

Qualified Charitable Distributions (QCDs)

If you’re over 70 ½, you can perform what’s known as qualified charitable distributions (QCDs). This means that, instead of taking a required minimum distribution (RMD) from your pre-tax retirement accounts, you can give up to $100,000 directly from your IRA to a 501(c)(3) this year to fulfill your RMD amount. Thus, you don’t add the money to your taxable income, you do accomplish your charitable giving goal, and you avoid paying taxes on the amount that you donate.

Keep in mind that you do need to give directly to a public charity versus giving to a donor-advised fund with this strategy.

Create A Family Giving Tradition

Along with these financial strategies, charitable giving has a much larger impact on our communities than on an income tax return. In preparation for family gatherings, start dialogues about how to give, where to give, and why to give. 

No matter where you are in your charitable giving journey, you can improve your strategies over time and include those who you want to join you in your journey. I know families who have charitable giving meetings toward the end of the year where each member of the family — kids included — can all have open discussions about where they want to give their time, treasure, and talent during the end of the year and beyond. 

To get some ideas on how to create an impactful giving strategy, you can reference another article I wrote, called Don’t Be a Peanut Butter Philanthropist.

Let’s Talk Charitable Giving

If you want to have a conversation about charitable giving and how it can influence your financial plan, please schedule a charitable giving meeting with me. 

And if you’re not yet a client but want to have a conversation about charitable giving, I invite you to get started by scheduling a conversation with me. I’d be thrilled to help you if you’re interested in how you can give better!