With Giving Tuesday on December 3 this is a good time to think about how you are incorporating your charities into your overall financial plan. In doing so you can enhance your overall financial and tax strategy while allowing you to make a positive impact on the causes you care about.
Here are some key steps to add philanthropy to your financial planning:
1. Identify Your Charitable Goals
Do you have a cause that you are passionate about or aligns with your values? It could education, animals, environment or social justice. Now consider how you want your contributions to make a difference. Are you looking to fund specific projects, provide scholarships, or support ongoing operations for nonprofits?
2. Assess Your Financial Situation
Set up a budget for your philanthropy. Your financial advisor can help with this. Looking at your overall financial health, including income, expenses, savings, and investments. Allocate a portion of your budget for charitable giving.
3. Choose the Right Giving Vehicle
Donate directly to the charity either by making a one-time or recurring donation. This is the simplest option.
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- Set up a Donor-Advised Funds (DAFs) account: These accounts allow you to make a charitable contribution, receive an immediate tax deduction, and decide later how to distribute the funds to various charities.
- Consider a creating a Charitable Trust: A charitable remainder trust provide income to beneficiaries while benefiting charitable organizations. Contributions are only deductible if made to qualified organizations, such as 501(c)(3) charitable organizations.
- Qualified Charitable Distributions (QCDs): Transfers of funds from an IRA to a qualified charity for individuals aged 70½ or older. QCDs can count towards your required minimum distributions (RMDs) and are not included in your taxable income.
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4. Tax Benefits
Charitable contributions are generally deductible if you itemize your deductions on your federal tax return. The deduction can be for cash donations or the fair market value of donated property. Be sure to keep receipts and records on your contributions.
5. Create a Giving Plan
Determine how much you want to give each year and to which organizations. Track your donations to ensure they align with your budget and goals. Another good strategy is to plan when and how often you will make contributions, whether monthly, quarterly, or annually.
6. Volunteer
If you are in a position unable to make a financial contribution, consider donating your time and skills to organizations. Volunteering can be as valuable as monetary donations and helps you connect with causes on a personal level.
7. Review and Adjust Regularly
Regularly assess the effectiveness of your giving and the impact it has on the causes you support. Adjust your strategy as necessary based on changing priorities or financial situations.
Incorporating philanthropy into your financial plan not only supports important causes but also reflects your values and legacy. We are here to help you understand how philanthropy fits into your financial goals and aligning with your long-term financial and tax strategy.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
