Charitable giving: Creating your personal philanthropy strategy
A well-planned strategy for giving back to causes that are important to you — whether through charitable giving, cash, non-cash charitable donations or volunteering — can provide a range of benefits, from reduced taxes to a sense of personal fulfillment and a meaningful legacy.
Once you’ve identified your personal goals and priorities for giving, an Ameriprise financial advisor can help create an approach that fits with your overall financial goals. The following thought-starters can help you plan out a personal philanthropy strategy.
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Before you decide on a non-profit or charity, do some research. Identify charities that support causes you’re passionate about, such as medical research, arts and culture, or social and economic issues. Then spend time researching them to ensure they’re using their charitable donations in ways you feel are appropriate. Websites such as CharityNavigator.org and GuideStar.org can help. Many worthy causes have more than one nonprofit devoted to them, so don’t settle.
Some nonprofits, such as international charitable organizations, may not qualify for charitable tax deductions. One way to help confirm the tax deductibility of a donation is to use the IRS tax exempt organization search tool to check an organization’s tax-exempt status.
To claim a federal income tax deduction for your donations, you’ll generally need to itemize your deductions rather than claim the standard deduction, so keep and organize your receipts for future reference. Keep in mind that charitable donations will only lower your taxes if your total itemized deductions are higher than the standard deduction for that tax year. For tax years 2020 and 2021, a small exception exists that allows taxpayers using the standard deduction to claim a charitable deduction of up to $300 (or up to $600 for married taxpayers filing jointly in 2021 only) for certain qualifying cash donations.
While cash is a straightforward way to give back, there are options to consider beyond a simple cash donation:
- Invest in a charitable gift annuity. With this specific type of annuity, you’ll donate an upfront lump-sum to a charity and receive lifetime payouts on a fixed schedule. You’ll also potentially qualify for a partial charitable tax deduction when you make the initial donation, and the charity will keep any remaining annuity funds upon your death.
- Use a donor-advised fund, which allows you to claim a potential charitable tax deduction today for funds you contribute to a charitable investment account. You can make a significant contribution in one year and make recommendations on how to allocate the funds to nonprofits over a number of years.
Many people automatically pull out their checkbook when it’s time to give. While cash gifts may be convenient, non-cash charitable contributions are another great option for donations. Other charitable giving strategies include:
- Donate appreciated stock or assets. If you donate appreciated stock that you’ve held for more than a year, then you’ll generally be able to claim a potential charitable tax deduction for the full fair market value of the stock. This approach saves paying the capital-gains tax that would result if you instead sold the stock and donated the cash.
- Donate your life insurance proceeds to charity. Naming a charity as beneficiary of a life insurance policy can make your charitable gift go further by leveraging premium dollars into a larger death benefit amount. Because you retain ownership of the policy, you can change beneficiaries at any time, for any reason.
If you instead choose to donate full ownership, rather than just proceeds, you no longer control the policy, but you’ll gain a potential income tax deduction. Also, if you continue to pay additional premiums, you can potentially deduct those payments from your income taxes as charitable donations.
- Donate clothing and goods and get a charitable donation receipt. Donating items that are consuming space in your attic or closets can help others while providing you with a potential tax deduction. Used items generally need to be in good condition or better. Like other giving types, donations must be made before December 31 to claim a tax deduction for that calendar year.
There are several ways to make planned giving part of your estate plan, including:
- Designate a charity as a beneficiary on permitted accounts, such as an IRA.
- Set up a trust to benefit charitable or family interests. A charitable lead trust, for example, provides income to charity today, while leaving the remainder to named beneficiaries; a charitable remainder trust pays income to you or your family for a period of years with the remainder going to the charities of your choice.
Giving doesn’t have to end with donating money or things – you can donate your time, as well or instead. Whether you’re still in the work force or have already retired, nonprofits are almost always in need of volunteers.
Popular ways to donate your time include:
- Volunteering with a local charity or nonprofit. Whether you’re leveraging your professional skills to teach or mentor others, serving on the board of a non-profit or volunteering in a hands-on role at a local charity or non-profit, there are many opportunities to give back in the community through giving your time. If you’re retired but have already been making connections with community organizations outside of work hours, then skills-based volunteering — using your career expertise to help others — may be a natural progression for you.
- Voluntourism, or volunteering while traveling. The dream of exploring the world while making it a better place can become a reality in retirement, when you’ll likely have a more flexible schedule. Traveling with a purpose — commonly referred to as “voluntourism” — can be done independently, though working with an accredited organization can ensure your safety, as well as the impact of your endeavors.
Additional tips to consider:
- If you’re not sure where to start with charitable giving strategies, websites like volunteermatch.org and idealist.org can help you find volunteer opportunities near you that fit your interests and skills.
- If you volunteer with a nonprofit, keep track of your volunteer auto mileage and expenses, as those may be tax deductible, too.
- Volunteering in retirement presents unique opportunities since retirees often have more professional experience and more free time; charities especially value the contributions that retired and senior volunteers bring.
- People who volunteer tend to feel better physically, mentally and emotionally, according to a UnitedHealth Group Study.*
An Ameriprise financial advisor can help develop a well-rounded strategy for charitable and personal giving strategies and create an approach that maximizes your contributions, provides potential tax benefits and reflects your values and the kind of long-term legacy you want to leave for others.
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