If you’re thinking about giving to a good cause during the holiday season, then you are in good company. Thirty-one percent of online charitable giving occurs in the month of December, and 12 percent of online giving occurs during the last three days of the year.
You might also be pleased to know that if you are an American citizen, you are counted amongst the most charitable people on Earth. In fact, the economic top 1% of American households are responsible for one-third of all worldwide charitable donations — and the American poor and middle class donate an even higher percentage of their wealth than the rich.
All of this charitable giving may have something to do with the fact that many Americans trust nonprofit organizations more than they trust other ways of improving society. Also, it doesn’t hurt that charitable giving comes with a number of tax benefits.
The main benefit of giving is in knowing that you are supporting a cause (or causes) you believe in. The key is to make sure that each of your charitable dollars results in maximum social impact, which means you need to identify the right charity.
Here’s how.
Ask key questions
Sure, you can just give your money to the first organization that asks, but it might be better to put a little thought into your values and expectations. That means coming up with a giving strategy based upon a few key considerations:
Does this charity match my values?
There are more than 1.5 million nonprofit organizations registered in the United States. With so many options to choose from, there is no reason why you should give your hard-earned money to a charity that does not match your values exactly — or at least very closely.
Is this charity effective?
Just as with for-profit companies, not all charities are on the up-and-up — and how a charity uses its money will dramatically impact its effectiveness. In order to determine the likely effectiveness of a charity, pay close attention to its current finances. If a charity is not financially healthy, that will certainly make it less effective.
Also, take note of how transparent the charity is. If the charity makes it difficult for you to find out how they use donated funds, that is not a good sign.
Do I trust this charity enough to give them my money free and clear?
As mentioned above, you should be convinced of a charity’s effectiveness before you hand over your money. You could place limits on how a charity uses your donation, but this restriction can limit your charity’s flexibility.
Does this charity have great leadership?
Great leadership is essential to any organization, but this is especially so in the case of charities and nonprofits. Not surprisingly, employees at non-profit organizations are often overworked and underpaid.
Retaining good people is difficult even for profitable companies, so it is especially difficult for non-profits operating on tighter budgets. This means that non-profit managers must be especially adept at creating work environments that retain good employees despite significant challenges.
Nothing gets in the way of organizational effectiveness more than high employee turnover, so good leadership is essential to any effective non-profit organization.
Strategize for tax effectiveness
Now that we have talked about how to make your charitable donation effective for the cause you wish to support, let’s talk about how you can make your donation effective for your cause as well — that is, by reducing your tax burden.
Your primary goal in giving to charity is to support the causes you believe in — but while you’re at it, it’s a good idea to also maximize the tax advantages that come with charitable giving.
In order to qualify for a current-year tax deduction, you must make your contribution before December 31st, so here are a couple of options you may want to consider to help maximize the charitable tax benefit before the new year rings in:
Give appreciated stock
If you donate stock that has appreciated in value, you can count the current value of the investment as an itemized tax deduction, which means you will avoid paying any capital gains taxes on the profits.
If you start earlier in the year, you can even set a target appreciation level for giving the investment to charity, and then transfer ownership before the end of the year.
Set up a donor-advised fund
A donor-advised fund is a mutual fund that serves as an investment for later charitable giving.
When you give to a donor-advised fund, you get a tax deduction based upon the date when you give to the fund — but you have as much time as you like to decide which charities to support.
This can be a good option for people who want to give their investment time to grow before giving it, or who want to take a charitable tax deduction without deciding before the end of the year where to donate the money.
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Use online resources
Now that you’ve started thinking about how to donate your money to charity, here are some pointers for going deeper:
- Charity Navigator is “the nation’s largest and most-utilized evaluator of charities.”
- The Wise Giving Alliance, operated by the Better Business Bureau, “does not rank charities, but rather seeks to assist donors in making informed judgments about those that solicit their support.”
- Guide Star “organizes, and distributes information about U.S nonprofits.”
- The Council on Foundations can help you find information on local (as opposed to national or international) charities.
Narrow your focus
As you can see, you have many options when it comes to choosing charities, but try not to spread your money too thin. It is better to focus on one or two charities because this will minimize the percentage of your donations that goes to administration and other incidental expenses while increasing the amount of your donation that goes to mission-specific goals.
Don’t forget to feel good about giving
Donating to charity is one of the most pleasant tasks you can engage in. For many, charitable giving is the best indicator of a life well-lived. The best motivation for giving to charity is the desire to support a good cause, but that doesn’t mean you can’t use your head even as you are giving from your heart.
Nikolas Jintri is a writer and educator who teaches at Temple University in Philadelphia.
Haven Life Insurance Agency (Haven Life) does not provide tax, legal or investment advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, and investment advisors before engaging in any transaction.
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