Giving Back Strategically During the Holidays

As the holidays approach, so, too, do the appeals for charitable gifts. If you’re like many people, your mailbox and inbox are already filled with messages from nonprofits asking for your financial support before the end of the year. As much as we want to help worthy causes, we each have a finite amount of money that we can afford to give away without jeopardizing our financial security.

Deciding which charities to support and at what level can feel overwhelming, but as with most things, it comes down to planning and prioritization. Here are some tips to keep in mind to help you give strategically and maximize the impact of your gifts.

Giving intentionally

As you consider how to allocate your money, you should answer these important questions:

• Do I have a close connection to the organization? Donating to causes close to home can be one of the most effective and fulfilling means of giving. This can include school groups, food shelves, youth programs, libraries, and churches.

• If not, do I have a passion for the charity’s mission? If you are not closely connected to the charity, you should look into how its mission aligns with your own values.

• Is the organization’s reputation strong? You want to feel comfortable in the leadership of the charity, whether it manages its finances prudently and if it can be trusted with your money.

These are key general questions to help you assess the best use of your charitable dollars. After you determine where and how much to give, it’s worthwhile to explore the potential tax savings you could potentially reap.

The tax question

The reality is that the tax benefits of giving have changed dramatically for most people. The Tax Cut and Jobs Act of 2017 raised the standard deduction to a point where the vast majority of Americans are better off claiming that form of deduction rather than choosing to itemize deductions on their tax returns. Those who itemize may be able to deduct the value of most charitable gifts from their income in the tax year in which the gift is made. While modest charitable gift deductions were allowed for all taxpayers in 2020 and 2021, that is not the case in 2022.

One potential alternative, depending on your age, is a Qualified Charitable Distribution (QCD) directly from an IRA to qualified charitable organizations. You must be age 70-1/2 or older to execute a QCD, but it is one way to fulfill required minimum distribution rules if they apply to you. Since the distribution goes directly to your selected charities, you don’t have to claim the income. That has the same effect as taking a tax deduction for the gift. You can gift up to $100,000 per year using this strategy (or $200,000 for a married couple filing a joint return).

More than money

If you’re in a giving spirit, but have a tight budget this year, keep in mind that many organizations also benefit from the contributions of time that individuals make. Volunteers are critical to the success of most non-profit groups. Helping them deal with day-to-day tasks of their operations, serving on governing boards, and assisting in fundraising efforts are a few of the ways you can give your time to benefit a charitable group.

As you prepare to give this holiday season, don’t forget to put a plan in place to help maximize your donation – whether money or time.