How can you help?
People choose to donate their money to philanthropic causes for various reasons. Some of which include:
In 1999, Americans gave $190 billion or 2.1% of Gross Domestic Product to charities compared with 1.5% in 1997. That’s an increase of $124 billion dollars!
- feeling a sense of responsibility to help their communities,
- wanting to leave something significant for society,
- meeting people with similar interests,
- having strong religious beliefs,
- enjoying a sense of personal satisfaction through a rewarding experience,
- taking advantage of certain significant tax breaks allowable for charitable contributions.
Furthermore, there are approximately 109 million volunteers donating an average of 3.5 hours of time each week among adults 18 and over. Did you know that 70% of households contribute to charity and the average family gift is over $1,000? And that individual giving is approximately 2% of income?
How Can I Give?
There are several vehicles in which you can donate your money. Of course, carefully researching your choices and goals would ensure you the best way to leave your contribution with the biggest impact. You can:
- make a direct gift to a charity in cash, marketable securities or in-kind,
- make a gift to a community fund or specific funds within a community
- contribute to a corporate giving program,
- join a giving circle at a nonprofit,
- make a planned gift through various legal vehicles.
Frequent gifts are usually in the form of cash, marketable securities and stock in a closely held corporation. Tax deductions for gifts of cash to an already established charity are up to 50% deductible from your gross adjusted income for the year. Deductions for stock or real property and real estate are 30%.
Example 1: You donate $1,000 to “XYZ charity” and you are in the 31% tax bracket. You can claim an income tax deduction of $1,000 for a savings of $310. If you are over the limit you may claim for this year, you may carry over the remaining portion into the next tax year. (*Note: If you donate stock for a 30% deduction, you may choose to augment that 30% with 20% in cash to allow for the full tax benefit of 50%).
You cannot take an income tax deduction for the value of your volunteered time. But you can deduct expenses on work done for a charity. For example, when you drive or take the subway to volunteer at a hospice, some of the transportation cost may be deductible. Just keep a written account of your driving mileage or any receipts.
For tax purposes, you should keep detailed records of any monetary contributions or donations of clothing, household appliances and other goods to charity.
The advantage of giving stock is simple: The charity gets a donation at a cheaper cost to you than if you sell the stock first and then give cash. The stock you donate should be a long-term capital gain asset. In other words, you should own the stock for 12 months or more to claim the full fair market value deduction. Otherwise, you may deduct only your original cost basis or purchase price.
Several funds carry a minimum donation. The endowment is easy to set up, since the financial institution handles the administrative.
Many of these funds are donor-advised. You get to take an immediate tax deduction for your cash or securities contribution, you get some say in which qualified public charities get your money, and your endowment compounds over time.
Community foundations are local charitable entities that may administer a number of endowed funds primarily for local purposes. (i.e.: to solve community or regional problems, and to improve the lives of people in their geographic area).
Because community foundations are public charities supported by donors from across the community, all contributions are allowed the maximum tax benefits (up to 50% of adjusted gross income).
You may simply make an unrestricted gift, the income from which is used where the foundation’s board of knowledgeable local leaders deem it is most needed. Or you may support a field of interest fund for the arts, education, the environment, or other area of charitable interest. You may also elect that a specific charitable organizations benefits from your gift.
Under a donor-advised fund, you can name the fund, establish a broad purpose for the fund, or designate a specific charitable organization to benefit. You many also assign other family members to join you in advising the community foundation on how the income from your fund should be distributed. While the final decision on grant distributions rests with the board of trustees of the community foundation, your fund is not subject to the excise tax and payout requirements of a private foundation.
A donor-advised fund can be established quickly and easily. While the community foundation will charge a small annual fee for administering your fund, research indicates that, depending on asset size, it is normally less expensive than the annual operating expenses of a private foundation.
Establish Your Own Giving Circle
You can join other like-minded individuals to form giving circles. To form a giving circle, donors pool their funds, invest them, and then make joints decisions about how to distribute the income and/or principal of these funds to other philanthropic or charitable organizations in the form of grants. Donors will often commit to participation in a giving circle for a number of years at an established dollar level. The pooled funds may be held at a local bank, or at some other nonprofit or commercial entity that will invest the funds and enable them to earn income.
Explore Your Planned Giving Options
By working with a qualified attorney, certified financial planner, or other professional financial advisor, planned giving will make it possible for you to give to the charity of your choice effectively and with greater impact while meeting your current income needs and providing for your heirs.
The money you bequest to a qualified nonprofit organization is fully deductible for federal estate tax purposes. You can designate that your charitable legacy goes toward a specific purpose. But most charities prefer unrestricted gifts so that they can respond to changing needs and missions. Sadly more than half of all Americans die without a will. Good estate planning begins with a will.
Charitable Remainder Trust
A trust is a legal entity created by a property owner that protects and distributes the property according to the owner’s wishes. A trust transfers assets to a third party for the benefit of a beneficiary—in this case a charity.
You get an income tax deduction based on the present value of the future gift when you transfer the assets into the trust. You avoid capital gains taxes on the assets placed in the trust. The assets are also removed from your estate and are, therefore, free of estate taxes. However, a charitable remainder trust is an “irrevocable” trust. Irrevocable means you can’t wake up one morning and say to yourself, “Oops, I made a mistake.” The trust can’t be changed or revoked once it has been created, although you can name a new trustee or charitable beneficiary.
You get an income with a charitable remainder trust. The trustee sells the assets in the trust and invests the proceeds in an income-producing investment. You receive an income and pay taxes on those payments. The trust can pay you a fixed percentage of assets, which must total at least 5% annually of fair market value. You could also receive a set dollar amount, with the annual payments totaling at least 5% of the initial donation. Whatever is left over when you die or at the end of a specified time period goes to the charity you have selected.
Charitable Lead Trust
This trust reverses the income and asset flow of the charitable remainder trust.
The charity receives a regular income from assets held by the trust. Your heirs get the assets back when the pre-determined life of the trust has expired. Basically, the same asset is a gift to the charity and an inheritance for your beneficiaries. But the overall tax benefits are not as generous as the charitable reminder trust.
When you make a charitable gift of cash, stocks or other property, you get in return, a fixed lifetime payout from an annuity. The charitable tax deduction lowers your income taxes and the charity keeps the remaining principal when you die.
You can donate a life insurance policy in different ways. Include naming a charity as the beneficiary of a policy, giving to charity a policy on which you are still paying premiums, and having your insurance policy dividends go to a charity. Any of these are simple and easy to do!
Interested In Knowing More?
You should discuss your giving options with your personal financial advisor.
If you’d like to speak with a trusted financial or legal advisor about your planned giving options, but don’t know where to start, Please contact us at any time and we will be able to guide you to the right professional advisor according to your needs.
If you have questions about the reliability of a particular national nonprofit, the National Charities Information Bureau (212-929-6300) and the Council of Better Business Bureaus (703-276-0111) are two sources of information on larger, well-established nonprofit organizations.
Farrell, Chris. (Sept. 2000). “A Guide to Sharing the Wealth,” The Minnesota Public Radio.
“So You Want to Give?,” New Ventures In Philanthropy.
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