Do you hope to leave behind a charitable legacy? When there’s some wiggle room in the budget, you may want to do something more meaningful than purchasing the latest gadget. Philanthropic endeavors via local charities are incredibly admirable, facilitating real change in the place that you call home. No matter where you live, you can find local charities that are doing the hard work to make the world a better place.
If you are wondering how to partner with a charity for the change you want to see, here are a few easy ways to find local charities to donate to right now and well into the future.
Step 1: Identify Causes that Matter to You
The real problem usually is not finding a charity in your area. Instead, it is analysis paralysis due to the abundance of causes that are vying for your attention and resources. Before you make any type of giving plan, take some time to think about what really matters to you and the causes that you genuinely want to support. Rather than give a little bit to a wide range of nonprofits, focusing your efforts on just one or two can help ensure your gift creates a real impact.
Keep in mind that your support might not necessarily go to a charity. It could be your alma mater, a local university, or your church.
It is important to bear in mind that not all donations will be tax deductible, so you should prepare yourself for the reality of your finances at the end of the year. Donations to churches and most religious organizations, governments, nonprofit organizations, and nonprofit schools and hospitals are all tax-deductible. If your goal is to lower your taxable income for the year, focus your efforts here.
On the other hand, gifts to political organizations, civic leagues, social clubs, and groups for personal profit are not tax-deductible. Donations to country clubs, homeowner’s associations, and other similar groups are also restricted from beneficial tax deductions.
Step 2: Research Local Charities in Your Area
Once you know what causes resonate with you, it is time to research, locate the groups that are making the changes you want to see, and vet their ability to create impactful change.
When looking for local charities to donate to, use online resources like Charity Navigator, GuideStar, or even a local community foundation to explore and analyze your options. These sites provide comprehensive overviews of a charity’s overall stability, efficiency, and sustainability.
Why does research matter so deeply when it comes to philanthropic giving?
First, it's essential to make sure that the charity you have in mind is a real and reputable nonprofit. Unfortunately, charity scams can take advantage of your generosity under the guise of a worthwhile cause – and funnel your donation directly to bad actors.
Second, you want to make sure that your money is going where you want it to go. For example, some charities may spend a disproportionate amount of budget on publicity and marketing in order to give the pretense of creating change while in truth, a decent chunk of their donations are going to the salaries of the executives or board of directors.
Every charity needs some budget set aside for overhead. But investigating their financial reports in closer detail will help you understand if their spending is a strategic, effective, and responsible use of your money.
Step 3: Ensure the Charity is a Qualified Nonprofit
As long as everything meets the IRS’s rules and limitations, donating to charity can affect your taxes. In addition to ensuring the charity is both legitimate and effective, do your due diligence upfront and ensure that your donation will be tax deductible at the end of the year.
The most well-known marker for a qualified nonprofit is the 501(c)(3) designation from the IRS which you can check on the government website here. When researching local charities to donate to, make sure they’re listed.
The designation matters because qualified charities are eligible for tax-deductible contributions, ensuring that your money is going to the right place. Especially if you plan to push the limits of how much the IRS allows you to give (up to 60 percent of your adjusted gross income in cash), it should come with tax benefits.
If you intend to itemize your tax return, the generous cash donation or the assets you gave away can lower your taxable income and reduce out-of-pocket tax spending.
Step 4: Maximize Your Tax Benefits
While some people may prefer to simply give cash when the mood strikes them, certain donation strategies can maximize tax and donation impact.
For example, you may want to create a lasting legacy with your generosity, prompting you to give to a charitable remainder trust. This allows you to create a source of income for a beneficiary, reduce your taxable estate, receive some tax benefits, and give to a qualified charity of your choosing.
At the same time, a CRT may not be the right fit. In its place, you may opt for a donor-advised fund which allows you to spread donations over multiple years when the perfect initiative comes around while receiving immediate tax benefits. Several charitable investment funds are out there to help you find the perfect match for your unique financial situation.
You could even give appreciated securities instead of cash, allowing you to avoid capital gains tax and maximize the value of your asset fully for the local charity of your choice. My favorite strategy is to give qualified money since it is the most highly taxable.
An efficient donation vehicle benefits both you and the charity that means something to you. The goal for everyone making generous donations is to bring about change and maximize the impact of their gift for both parties.
Remember that donations can only be deducted on an itemized tax return. If you waited until the end of the year to make a gift, you can still bunch donations to maximize your deductions for the year. Always keep documentation or receipts of your donation.
Maximize Your Charitable Impact with Magellan
Not sure how to make the most of your giving? Magellan can help with comprehensive estate, financial, legal, and tax planning. We can help you choose and establish a charitable vehicle, such as a CRT or a DAF, to create a lasting legacy with the local charity of your choice.
Let us be your one-stop shop for all things related to your ongoing financial management. Schedule your consultation today!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.