How You Can Optimize Your Year-End Giving to Nonprofits

by | Dec 22, 2021 | Announcements

Now is a good time to start planning your year-end charitable giving, if you haven’t completed it already. It’s time for you to be doing your IRA’s required minimum distribution, preparing for qualified charitable distributions, and updating your charitable giving plan for this year.

If you don’t have an IRA set up yet for charitable distributions, listing your favorite charities as beneficiaries, you should consider doing that now too. When you leave an inheritance for your children, it may be heavily taxed—both income tax and estate tax. Charities don’t pay any taxes on your gifts.

If you are over 72 years old, you are required to withdraw a percentage of your IRA based on your life expectancy. If you are over 70 ½ years old, you can make qualified charitable distributions up to $100,000 that count toward your required minimum distribution. There is a 50 percent penalty if you don’t take out the required minimum distribution amount for the year.

You can help actualize a bold, ambitious dream of what the world could be.

The magical beauty of your charitable giving results not only in tax savings for you but, as importantly, enhances our community and our world. Nonprofits change humanity for the better in a myriad of ways, whether through human services, the arts or ecology. As a donor, you are advancing equity and justice, enriching lives through museums and art, helping to nourish your fellow humans, curing diseases and much more.

So, don’t miss out on the joy that comes from being part of the vibrant process of giving back to others through your charitable gifts. You can be smart about leveraging your resources and be generous about making a difference for good at the same time. Also, research shows that gifting yields mental health benefits for the donor.

Donations are predicted to increase this year.

Donors plan to continue giving this year, according to a new study from fundraising technology company Classy. The annual survey, which ran between August and September 2021, asked a representative sample of 1,000 U.S. adults about their giving intentions and actual donations. Eighty-four percent said they planned to give the same or more to charity in 2021 compared to what they gave last year. 

A recent report from the Lilly Family School of Philanthropy at Indiana University forecasts a 4.1 percent increase in total giving in 2021 and a 5.7 percent increase in 2022. Donors are increasing their giving to their favorite charities and including additional nonprofits because they are aware of the suffering that has occurred from an increased demand for services because of the pandemic.

For example, the Foodbank of Santa Barbara County is serving more people than ever before. Other organizations like CALM, Friendship CenterDomestic Violence SolutionsCADA, Rescue Mission and Hospice of Santa Barbara are being especially challenged by these difficult times. Some organizations like the Santa Barbara Foundation and United Way of Santa Barbara County have been giving direct aid to families impacted by job loss and other challenges.

The pandemic has also significantly hurt the arts, music, and museums. If arts and music interest you, you might consider donating to Camerata Pacifica, Opera Santa Barbara, Santa Barbara Dance Institute, or Music Academy of the West. If museums are your preference, we suggest Santa Barbara Museum of Natural History, Santa Barbara Maritime Museum, or Trust for Historic Preservation. Others worthy of your donations include Santa Barbara Response Network and TV Santa Barbara.

This year please give special thought to creating an intentional and creative plan for your charitable giving by designing your own giving plan that reflects your values and passion.

Identify why you are giving and which causes stir your soul.

People make charitable donations for all sorts of reasons. Some believe passionately in a particular cause and want to do all they can to make a difference. Others donate because giving is a deeply held family tradition. Some businesses make charitable donations because they know it will draw customers while benefiting their community. Still others want to do all they can to be part of the solution for a certain problem in their community. There are a few who like the prestige of seeing their name high on a public listing of donors.

All reasons for giving are valid, but it’s best to identify exactly what motives drive your own giving engine.  Your reasons for giving will provide a foundation for your own philanthropy plan. I invite you to spend some time asking yourself why you are giving. You might find some surprising answers; and identifying why you are giving will be the first step toward making the greatest impact and feeling the greatest reward. Sitting down with pen and paper to examine your heart will reveal your basic areas of interest. Ask yourself which causes you hold dear.

You can’t give to every solicitation that fills your mailbox. So be proactive.  Decide what causes stir your own soul. Make a short list of your categories of interest and then begin to list organizations that address those areas of need. Next, it will be time to do a little research.

Do your research to determine which organizations you will give to.

Once you have identified exactly why you want to make charitable donations and which organizations resonate with you, I invite you to do a little research. Some people will want to do more research than others, but everyone can benefit from looking a little deeper than the donation request in your mailbox.

Take a look at the list of nonprofits you compiled. Rank the organizations in order of their priority to you.  Choose charities that are truly making a difference and are going to be around for awhile. You want to be sure that any donations you give support organizations that are financially stable, well-run, and achieving results for their mission—or at least are showing promise of doing so in the case of start-ups.

You can review the finances of any nonprofit with a 501(c)3 tax exempt status by examining its 990 tax return on Guidestar.

Another important consideration is whether the organization can sustain its programs over time. Their 990 will reveal whether they are able to grow their revenue at least at the rate of inflation, continue to invest in their programs, and maintain an appropriate reserve account for unexpected expenses. These are all indicators of economic sustainability and accountability that will give you a sense of their effectiveness and staying power.

Keep in mind that a nonprofit’s full cost of doing business includes: 1) direct costs of delivering programs; 2) indirect costs to support effective program delivery such as fundraising, marketing, management salaries, occupancy, and infrastructure; and 3) costs related to strengthening the balance sheet such as investments in facilities and other fixed assets and reduction of debt.

Don’t be misled by charities that claim unusually low overhead expenses. And don’t be surprised by high percentages spent on personnel costs. It’s common for human service nonprofits to spend 52% to 75% of their management and general funds on personnel expenses since this is usually the vehicle for delivering their services. 

Now that you have identified your personal motives for giving, made a list of your areas of concern and organizations that fulfill those missions, and investigated the financial and programmatic viability of some of your favorite organizations, it’s time to decide how you will give and how much you will ultimately donate.

Choose the best giving vehicles for you.

Before you decide how much you want to give to each organization, you will want to take a look at the possible vehicles or ways of giving to determine which ones are best for you. Charitable giving can help reduce your income taxes, estate tax, and capital gains tax so it is crucial to think about how you can best leverage tax rules to expand your philanthropic impact.

Everyone can give something and each method of giving has its own benefits. Here are some of the more popular giving vehicles to consider:

  • Writing a check offers a quick and easy way to donate. You can mail this to the organization or donate through their website. This can be an immediate income tax deduction and removes the value from your future taxable estate.
  • Giving assets such as cars, real estate, clothing, or household goods can be deducted based on the full fair market value of the items.
  • Including the charity in your will makes the donation exempt from federal estate tax and allows you control of your assets for your lifetime.
  • As discussed in the beginning of this article, you can make cash donations to IRS-approved charities directly out of your traditional IRA and not have it included in your adjustable gross income. The best way to do it.
  • Donating appreciated stocks and mutual funds eliminates tax on long-term capital gains and offers an immediate charitable deduction based on the value of the stock or mutual fund.
  • Gifting your retirement assets allows you to make the gift from the most highly taxed assets.
  • Making a gift of life insurance offers a current income tax deduction and allows you to make a large gift with little cost to yourself.
  • Setting up a family foundation appeals to some high net worth individuals because it is the best way to make sure your donation totally matches your values and interests.
  • Donating through donor-advised funds is becoming more popular. These funds are charitable giving accounts offered by a sponsoring organization, such as the Santa Barbara Foundation or companies like Morgan Stanley that are designed as an accessible, simple, and less expensive alternative to private foundations. Put your money in, let the sponsoring institution manage it, and then make a donation to the causes of your choice.
  • Giving circles like Women’s Fund of Santa Barbara is both fun and practical.
  • Arranging for a planned gift such as a charitable remainder trust, a charitable lead trust, or a charitable gift annuity has a variety of benefits and is best handled by a financial professional.
  • Remember that volunteering your time doesn’t cost you a dime. Whether you have one hour a week or one day a year to give you can donate your time to a cause that inspires you.

Hopefully these suggestions will help you create a philanthropy plan that reflects your unique interests and passions. You will now be ready to make your contributions with the certainty that they will make a significant impact in your community and deeply resonate with your own spirit.

Your gifts will make a difference and the organizations you give to will be the ones that are strong and viable for the long-term. This is especially important this year when so many nonprofits have been so negatively impacted by the virus restrictions and shutdowns.