December 14, 2020
Charitable Giving Questions on Taxes and Retirement
Giving back is great, but it doesn’t come without questions. Whether you’re trying to guarantee your gift makes an impact or wondering what that donation means come tax time, we’ve got the answers you need to give with joy and peace of mind.
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It’s a joy and a privilege to be able to give a gift. But that doesn’t mean it’s simple. Any type of giving, especially charitable donations, can come with tons of questions. You might be questioning whether or not your gift will even make an impact, or be completely confused about how to handle that donation when you file your taxes.
Keep reading for the answers to some questions you may have about charitable giving, so that you can donate with peace of mind.
How do I know when there is a tax incentive to give to charity?
This is going to depend on a lot of factors, including the type of organization you’re giving to, how much you give relative to your income, and where and how you file your taxes. Luckily, there are great online tools that will give you the personalized information you need to determine whether your donations will result in a tax incentive.
In order to best utilize those tools and simplify your process, keep these tips in mind as you give throughout the year:
- Collect receipts. Any time you donate, ask the organization for a receipt, even if you’re not sure if they’re a tax-deductible organization. Most should be able to provide that for you, but if they can’t, make a note of the date and amount of the donation in your personal budget records.
- Keep track of in-kind donations. If you’re giving items to an organization (as opposed to cash), you can use handy tools like Salvation Army’s Donation Value Guide to determine the monetary value of your gift. Record those gifts the same way you would financial donations in your personal budgets, so that you can evaluate them at tax time.
- Know the limitations. Not every donation you make will be tax deductible. For instance, you may buy groceries or pay rent for a neighbor who’s fallen on hard times, but those kinds of personal gifts don’t count towards a tax incentive.
- Think beyond writing a check. You may be financially able to seriously help organizations and minimize taxes on your retirement income by giving in ways like appreciated stock donations or qualified charitable distribution. If that’s you, check out our guide to those outside-the-box types of donations that could lead you to a tax incentive.
Once you’ve collected your yearly donations, you’ll be able to start figuring out which type of tax filing makes the most financial sense for you in any given year. Critically, you are typically unable to receive a tax incentive if you take the standard deduction, which in 2020 will be $12,400 for single taxpayers and $24,800 for married couples filing jointly. This year, though, thanks to the CARES Act, there will be a slight change to these rules. Even if you take the standard deduction, you’ll be able to claim as much as $300 in donations made during the year 2020.
Many people who make modest donations find that taking the standard deduction, which has about doubled in recent years, yields them better tax returns than itemizing their taxes does. For this reason, some people stagger their donations, itemizing their taxes and giving generously every third year, for instance, and then taking the standard deduction in the other years.
Figuring out what’s best for you doesn’t have to be guesswork. If you file your taxes online using services like TurboTax, H&R Block, or TaxSlayer, they’ll typically make a recommendation to you about which avenue is best to receive the biggest deduction. The IRS also has an online tool that you can use before filing to see which of your donations could lead to a tax incentive.
You can also turn to an online giving calculator. This is a great tool because it lets you enter hypothetical information, so you can play around with numbers and see how much you could give to receive a greater deduction than the standard deduction.
How do I figure out how much I can or should give?
The short answer to this question? There’s no right number—give whatever you can! But you deserve the longer answer, because this is a complex question that many people struggle with when giving to charitable causes.
Americans gave $427 billion to charity in 2018, and IRS data shows that those numbers typically meant people gave anywhere from 2% to 11% of their income to charitable causes. But those numbers don’t tell the whole story, since everyone’s financial priorities and incomes differ. Here are a few things to keep in mind (in addition to aforementioned tax incentives) when figuring out how much of your income to donate:
- Personal Priorities: If you don’t have any dependents in your life, you may find yourself able to give a more significant percentage of your income to charity. But if you’re paying off debt or have people who rely on you financially, like elderly parents or a sick grandchild, you might want to hold off on bigger donations. You’re still making a charitable impact in peoples’ lives, but you may have less disposable cash to give to outside organizations.
- Spiritual Guidelines: Some religions issue guidelines about giving, suggesting donation amounts like a 10% tithe. If you’re a person of faith, you might check in with your spiritual advisor to see if they have a specific percentage of your income you can aspire to give.
- Important Causes: Many people understandably feel overwhelmed at the amount of need in the world, and aren’t sure how to distribute the limited funds they have to donate. If that’s the case, it’s helpful to pick one or two causes that are especially close to your heart. This can help you to give a little more generously and connect on a deeper level with great organizations, which can optimize your donation and bring greater personal satisfaction as you give. Plus, organizations are often better able to draw even greater donations or grants when they can show they have legions of loyal, passionate givers like you.
How do I know my money is making the most impact?
This is an essential question to ask yourself before giving. While the majority of organizations are working hard to make sure every penny they get goes towards doing good, it’s always helpful to discover exactly how funds get allocated at your favorite non-profit.
Luckily, that information is readily available for most US organizations. Before giving, use resources like Charity Navigator or Charity Watch to see where your money is really going. By entering the name of a charity in the search bar, you’ll be able to see information including a rating or grade of how well they’re allocating their resources, financial charts, salary information, and more.
There are some good guidelines to follow when evaluating the information you find. In general, you’ll want to see that at least 65% (ideally as high as 75%) of their total budget is going towards programming, with no more than 35% going towards fundraising and administrative costs. There are also standards you, personally, might want to prioritize when deciding where to give. Maybe you feel better giving to local organizations with tiny budgets as opposed to national ones that bring in millions of dollars in donations per year, or you may want to make sure you’re not giving to an organization where the CEO or founder has an inflated salary.
Whatever your priorities, it’s always smart and easy to do your research before you give. And if you don’t have a specific charity in mind, checking out lists from these tools or sites like Give Well can be a great way to inspire your giving and make sure you’re donating to a place where your money is making an impact.
In addition to your due diligence, don’t forget that there are ways you can personally maximize your impact beyond cutting a check. Maybe you can volunteer some of your time in addition to a financial donation, or vow that for every gift you make you’ll recruit three friends to do the same. If you’re doing a big spring cleaning, you might reach out to an organization to ask if they need in-kind gifts like gently used clothing, office equipment, or electronics.
How does charitable giving impact my retirement?
Whether or not you’re retired yet, it’s always smart to have it on the mind when making financial decisions like charitable donations. In addition to tax incentives, there are different ways that charitable contributions can make an impact on your overall Retirement Score. To determine how, start by calculating that score using Silvur. You can enter your current information, but also play around with hypothetical numbers to see if significant charitable giving would make a dent in that score. You’ll be able to see how far your current income and savings—both with or without some donations—will carry you into a comfortable retirement.
If you find that your Retirement Score indicates you’re a little behind where you want to be in your retirement savings, you may want to make a move like maxing out your 401(k) before you give a charitable gift. On the other hand, if you found that you can make a generous donation without impacting your Retirement Score, you can follow our tips to make sure you’re giving to an organization where it will make the greatest impact.
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Our partners at TurboTax, H&R Block, and TaxSlayer are able to work with you on maximizing your tax incentives from your charitable contributions. Visit Silvur’s Retirement Store to see how you can get an exclusive Silvur discount off their products. That way, you can rest easy with the knowledge you gave back to your community in the smartest way possible and save for retirement whenever you can. Make charitable giving part of your retirement plan through your estate, tax, or financial plans.