Charitable Giving and 7 Charitable Giving Missteps

Individuals, foundations, bequests, and corporations gave an estimated $449.6 billion to U.S. charities in 2019, according to findings in Giving USA 2020: The Annual Report on Philanthropy for the Year 2019.

We tend to think about charitable donations around the holidays. It’s year-end and your gift to a charity may be sparked not only by your desire to help others, but by tax planning strategies.

The standard deduction is much larger today thanks to 2018’s tax reform, which reduced the incentive to give for some folks. Gifts to a charity can only reduce your tax bill if you itemize when filing.

Bunching of contributions and Giving through a Donor Advised Fund are a couple of strategies that can be used to maximize the tax deduction of your charitable giving. Bunching of contributions involves giving an increased amount is year one and a lesser amount in year 2.

For example you normally give $10,000 a year to your favorite charity, but still fall just short of being able to itemize. If in year 1 you give $20,000 to your favorite charity, then that may allow you to itemize in year 1 and get a bigger tax deduction. In year 2 you would not donate additional to your charity and you would take the standard deduction. You then repeat that process every two years.

You can potential do a very similar thing through a Donor Advised Fund. This would allow you to give a large contribution in year 1, but still give a steady amount from the Donor Advised Fund to the charity in each year.

If you were unable to itemize, 2020 came with a small concession. You could deduct up to $300 of cash donations without having to itemize. In 2021 a married couple will be able to deduct $600 (or $300 each).

But let’s not forget that your gifts will not qualify for a tax deduction unless they are received by a tax-exempt organization, as defined by section 501(c)(3) of the Internal Revenue Code. For example, making donations to a personal fundraiser through GoFundMe is growing increasingly common, but they are not tax deductible.

While ensuring sure your gift is tax deductible is one challenge, there are others you’ll need to navigate, too.

Let’s review seven potential potholes to avoid when it comes to charitable giving.

that look for treatments and cures for diseases, charities that benefit animals or the environment, your church or place of worship, human services, international relief, or organizations that support the poor in your community.

The choices are almost limitless. Your resources are not.

2. Getting the best return. You’ve found charities that meet your criteria. For many, we want the best return on our dollar. We want our cash to be spent and invested wisely, not frittered away by large administrative costs.

According to CharityWatch, “Ask how much of your donation goes for general administration and fundraising expenses and how much is left for the program services you want to support. Most highly efficient charities spend 75% or more on programs.

“Keep in mind that newer groups and those that are working on less popular issues may find it necessary to spend a greater percentage on fundraising and administrative costs than well-established, popular groups.”

According to Smart Asset, which reviewed a report by the Tampa Bay Times and The Center for Investigative Reporting, 50 charities collected more than $1.35 billion in donations. Yet, $970 million went not to worthy recipients, but to the people who collected the money.

You desire to support your cause, not enrich the fundraisers.

A small effort on your part, i.e., “kicking the tires” of the charity, will go a long way. There are several charity watchdogs you can find online. Do your homework. You may find your decision reinforced by what you find. Or you may decide to steer clear of a particular organization based on your research.

3. Skip the middleman. Give directly to the charity and avoid solicitors. The middleman gets paid to raise funds. That’s a haircut on your donation you will want to avoid.

Furthermore, be careful about what might be called the flavor of the month. For instance, when a disaster occurs, there are reputable outfits we are all familiar with.

Sadly, fraudsters can also play on our desire to help. Donate here and little if any money will make its way to those suffering from a natural disaster. Instead, your funds may simply line the pockets of scammers.

5. Why wait until the last minute. Many nonprofits get a big chunk of cash at year-end. If possible, you can set up monthly payments that help even out the cash flow of these organizations, making it easier on their budgets—and your finances.

6. Rethink the small donation. Ten dollars is ten dollars, and plenty of ten dollar donations will add up, but processing costs for the charity is high. Besides, if you give once, you’ll probably be inundated by requests that raise a nonprofit’s costs, diluting the impact of your one-time gift.