Updated: Feb 15
With the year’s end approaching, I like to look back and be grateful for the many people I encountered in my life. I thank the many mentors/teachers who advised me on topics that I am not familiar with. I thank the nurses and doctors who take care of the sick while risking their own lives. And I especially thank those who sacrifice their time/money to further the advance of our society.
But what if my circumstances are not as heroic as the doctor, nurses, or teachers? What can I do? Harvard professor, Michael Norton, suggested that “Money spent on others can buy happiness”.
And giving does not have to be big. Our government encourages it through multiple ways. Let’s explore the topic with a little more detail.
Make Small Contributions To Charity And Keep Your Taxes Simple.
If you don’t itemize deductions on your 1040 tax return, individuals can claim a $300 “above-the-line” deduction for cash contributions made, generally, to public charities in 2020. This rule means that taxpayers claiming the standard deduction ($12,400 for single and $24,800 for married filed jointly) and not itemizing deductions can claim a limited charitable deduction.
Maximize Tax Deduction For Your Cash Donations.
For individuals that itemize, during 2020 as a result of the CARES act, cash contribution deductions can be up to 100% of your adjusted gross income (AGI). Normally this is limited to 60% of adjusted gross income except for donations to churches, fraternal societies, and volunteer fire departments.
Maximize Your Donations Through Giving Directly From Your IRA.
If you are over age 70 ½ and have an individual retirement account (IRA), you can make a qualified charitable distribution (QCD) from your IRA directly to a charity, or charities, of up to $100,000 during 2020. This must be a direct transfer of funds from your IRA custodian, payable to a qualified charity (501(c)3).
QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year and the distributions directly to a charity are excluded from your taxable income. Further, QCDs don't require that you itemize, which due to the recent tax law changes, means you may decide to take advantage of the higher standard deduction, but still use a QCD for charitable giving.
Setup Donor Advised Fund For Giving Across Time.
A donor-advised fund (DAF) is a charitable investment account, with the sole purpose of supporting charitable organizations you care about. When you contribute cash, securities or other assets to a donor-advised fund at a public charity, like Schwab Charitable, you are generally eligible to take an immediate tax deduction. The funds can be invested for tax-free growth and you can recommend grants to virtually any IRS-qualified public charity.
Your family can reflect each year on those most in need and make grant recommendations —from your local homeless shelter to your alma mater or religious institution. The public charity sponsoring your account will conduct due diligence to ensure the funds granted go to an IRS-qualified public charity and will be used for charitable purposes.
Donating long-term appreciated securities directly to charity—instead of liquidating the asset and donating the proceeds—can help maximize both your tax benefit and the overall amount you have to grant to charity. Plus a donor advised fund allows you to give over many years and to multiple organizations. <this last sentence could be a call out>
Set in your budget? Volunteer your time.
While cash donations, particularly ones that are annual, are of extreme value to charitable organizations throughout your community, what’s even more valuable is your time.
By donating your time, the organization benefits substantially by having your skills as a resource.
Here are a couple of places I volunteer my time.
As a regular volunteer at the Stone Creek Food Pantry, I meet people and gain a better sense of appreciation for the efforts of an organization I give to. They need a lot of hands to handle donations and distribution.
Some volunteer work doesn’t need to be regular. Many organizations, such as our local organization Feeding Our Kids, requires assistance making their annual fundraiser a success.
If you’ve a specialty, you can volunteer your time by being involved in non-profit organizations as a board member. I served on the Champaign Public Library board several years. It was a time commitment, but very rewarding and informative.
I find that in addition to making financial donations, being out in the community is personally rewarding and quite humbling.
“Money spent on others can buy happiness.”
Francis of Assisi said, “For it is in giving that we receive.” If your life circumstances permit, I strongly encourage you to volunteer your time and/or your money to the cause you believe in. And our government may reward you through various means.
If you would like to explore additional ways you can give and the impact it may have on your financial situations, the Peak Wealth Planning team can assist.
You may also be interested in reading:
- - - - - - - - - - - - - - -
About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.