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The hustle and bustle of the holiday season is just around the corner. The coming months will be filled with list making and meal prepping, online shopping and social gatherings.
Before you’re knee-deep in holiday recipes and commitments, we want to remind you that the end of the year is also a time for reflection, family, and gratitude. Many of you will use this time to teach your children that an important part of being good stewards of wealth is sharing with people or causes that are less fortunate. One way to get kids involved is to sponsor a child their age in another country through a program that encourages an on-going pen pal-like relationship like Compassion International, World Vision or Forever Changed International. As adults, we can lead by example by giving to the causes that are important to us.
Charitable giving is important primarily because it helps improve the lives of others, but there are also a few personal benefits. Despite popular belief, studies have shown that giving money to others improves donor happiness more than spending it on themselves. Additionally, it has been reported that the improved happiness and health of people who volunteer and make charitable donations is likely linked to reduced rates of stress and lower blood pressure.
More than just psychological and physical benefits, there might also be income tax benefits associated with charitable donations. Donations to 501 (c)(3) charities may reduce taxable income as an itemized deduction (charitable tax benefits are not available for taxpayers who take the standard deduction). For large charitable gifts, the amount of the deduction is limited to a percentage of your adjusted gross income (AGI), and varies based on the asset donated. For high-income earners, itemized deductions can be limited, however, the benefit of the charitable deduction will still help to reduce taxes. Most gifts to these qualified charities, except for the gift of time, qualify for a deduction.
The most common gifts are cash or check, highly appreciated stock, or personal property (including clothes, furniture, books, etc.). Lesser-thought-of property that also makes a great charitable donation is real estate, cars, life insurance policies, and qualified direct distributions to charity from retirement plans.
Even if you don’t have highly appreciated stock or much cash to give, making simple gifts of time, clothes, or small recurring donations to your church or charity will still go a long way. We encourage you to enjoy the gift of giving by incorporating philanthropy into your life.
Making $ense of Donor-Advised Fund
A charitable giving vehicle that allows donors to manage donations to desired charities. Donations made to a donor-advised fund (DAF) are tax-deductible (for taxpayers that itemize) and await instruction from the donor on when to grant the money to charity. Think of a DAF as a pass-through charity that allows a current-year income tax deduction and donations at the discretion of the donor. Funds are invested and have the potential to grow tax-free while donors are deciding on which charities to support.