Create a giving plan

Knowing the result you want is a key step for achieving any goal, whether it’s retiring comfortably, buying your dream home, or sending someone you love (or maybe even yourself) to college.

The same principle translates to charitable giving. Having a giving plan can help. “Much as you have an investment policy statement as part of your financial plan, a giving plan mission statement lists what you want to accomplish through your charitable support,” said Bryan Lewis, a financial planner with Vanguard Personal Advisor Services®.
Bryan Lewis
Bryan Lewis

Ann Gill, chief philanthropic officer at Vanguard Charitable, suggests structuring your giving plan the way you would a business plan. “Doing so can allow you to make a greater impact for the causes you love by giving in an effective, goal-oriented, strategic way,” she said.
Ann Gill
Ann Gill

As an entrepreneur does with a business plan, invest some time to learn about the return—in this case the positive impact—the charities you’re considering will get for your donated dollars. Some questions to ask:

  • How much of your donations go directly to fund projects instead of overhead?
  • Does the charity have metrics for success in place and is it meeting them?
  • If not, what impediments is the charity facing?
Sites such as Charity Navigator and GuideStar can help speed up your research process.

Focusing your giving on one or two charities, instead of writing small checks to many different groups, can also increase your impact. If you add up all the donations you make to charities during a year, you may be surprised at the total you’ve given. Following your mission statement can help you focus your charitable dollars more effectively.

Balance the demands on your giving dollars

You likely also want to balance your desire to give with all the other demands on your dollars.

“If you’re like many of my clients, you have multiple financial goals: saving for retirement, providing for a child’s education, maintaining a current lifestyle in retirement, or supporting loved ones,” said Mr. Lewis. “Incorporating a few focused charitable goals into your spending and investing plan can help you find that balance with all your other goals.”

Consider one option that Alisa Shin, a senior wealth planning strategist with Vanguard Personal Advisor Services, suggests is worth exploring during your highest-income years. “Give to a donor-advised fund, community foundation, or private foundation to maximize charitable deductions. Doing so allows you to create a nest egg for charitable giving that you can use strategically after you retire, when you have more time to focus on your charitable goals and the organizations themselves,” she said.
Alicia Shin
Alicia Shin

Explore giving something other than cash

When you give to the causes you care about, Uncle Sam gives you a gift back—a tax deduction. (You can deduct up to 50% of your adjusted gross income in many cases; however, the deduction may be limited to 30% or 20% depending on the type of asset you give or organization that receives it.)

“Giving an appreciated asset—perhaps a stock that’s grown in value over the years since you bought it—lets you take an income tax deduction at the time of the gift, plus you don’t have to recognize the long-term capital gain,” Ms. Shin said. “You can also give real estate, artwork, or valuable collectibles, provided, of course, the charity will accept the noncash or marketable security item you want to donate.”

“You may be able to give more in appreciable assets than you’d be able to give in cash, heightening your gift impact and the tax benefits to you and your loved ones,” Ms. Shin said.

You can deduct charitable gifts made to qualified charities from the value of your estate, which can reduce the potential estate tax. The deduction now can mean more assets for your heirs later.

Make the most of qualified charitable distribution permanence

If you have to take a required minimum distribution from a retirement account such as traditional IRA or 401(k) but don’t need to spend the money, consider giving that sum to a qualified charity. Congress reinstated these qualified charitable distributions for 2015 and made them permanent in December 2015 as part of a larger tax and budget package. You can direct up to a maximum of $100,000 per taxpayer.

“You no longer have to wait until year-end to use a qualified charitable distribution. And you can be confident that you’ll be able to take advantage of its potential tax benefit,” said Ms. Shin. “One thing to keep in mind, though: Donor-advised funds don’t qualify for this rule. However, they have a number of other tax benefits.”

Enjoy your heightened ability to make a difference

Individual donors made 72% of all 2014 U.S. charitable gifts, as reported by Giving USA, donating an estimated $258.51 billion. Using the above suggestions can help you also have a measurable impact, punching up the power of your gifts.

The information provided here is for educational purposes only and isn’t intended to be construed as legal or tax advice. We recommend that you consult a tax or financial advisor about your individual situation.