Giving back through charitable donations is one of the most lasting, satisfying ways you can have an impact on the world. Supporting organizations you value, whether they are feeding the homeless, educating the next generation, or bringing arts and music to your community can be one of the great rewards of success.
You can support charities in simple ways by writing a check, volunteering for a few hours a week, or donating goods or property. However, you may also want to consider other vehicles that can increase your impact and cut your tax bill. Here are some financial vehicles that can be used for charitable giving.
These funds allow you to contribute assets and recommend grants to qualified charities over time. You can take a tax deduction in the year in which you donate money to the funds and then allocate the money to worthy causes over time. This allows you to bunch donations in some years for maximum tax advantage without having to rush to put the money to work.
These trusts provide income to you or your beneficiaries for a specified period with the remainder going to the charity of your choice. These trusts are especially valuable if you have assets that have appreciated quite a lot because they allow you to receive income from them without selling and triggering a capital gain. You’ll also receive an annual tax deduction based on the value of your gift to the charity.
This trust provides income to a charity for a set term before the assets are transferred to your beneficiaries. You’ll receive a tax deduction when you set up the trust as well as annual tax benefits as the trust pays out income. However, income from the trust’s earnings is taxable, either to the grantor (you) or the trust itself, depending on how the trust is structured.
For individuals with substantial assets, establishing a private foundation provides control over the charitable giving process. You can involve family members in the administration of your foundation, which can be a great way to share your values with your children and other loved ones.
Endowments ensure a lasting impact by investing contributions and using the income for charitable purposes. Typically, a substantial pool of assets is placed in trust to fund the endowment, and the endowment’s board makes charitable gifts with the income. Because they spend only the income, not the principal, endowments can continue over multiple generations.
Annuities can provide donors with a stream of income while supporting their chosen charity. They can be a terrific way to help support your lifestyle now while ensuring an eventual gift to the charity of your choice.
You can also donate a life insurance policy to a charity, which can either keep the policy or cash it in.
The new higher standard deductible makes it harder to justify itemizing charitable deductions. However, you can meet that threshold more easily if you make two or more years’ worth of donations in a single year and then sit out subsequent years.
You can protect the land you own for future generations by donating either the acreage or a conservation easement to a qualified organization.
There are countless charities to choose from including small, local organizations making a direct impact on your community and global entities engaged in activities around the world. As you’re developing your charitable strategy, carefully consider which organizations best reflect your beliefs and values. If you have strong feelings about certain causes, let your emotions help you decide.
What is important to you? Focus on causes and issues that resonate with your beliefs and passions.
Where do you want to tie your name and legacy? Think about how you want to be remembered and the causes you wish to support long-term.
What is the best way to contribute based on the charity? Understand the specific needs and preferences of the charitable organizations you support.
How can you make an impact financially, physically, or both? Decide whether you want to contribute financially, volunteer your time, or combine both to maximize your impact.
You’ll also want to make sure that your contributions are used in ways that best reflect your charitable goals. Ask the organizations you’re considering these important questions:
Where does the financial contribution go? Understand how the charity allocates funds to ensure your donation supports your intended cause.
How is the vehicle/charity/nonprofit impacting the community? Investigate the organization's activities and outcomes to gauge its effectiveness.
Does the vehicle/charity/nonprofit have material you can read to explain how contributions have been used and plans for the future? Look for annual reports, impact studies, and other resources to learn about the charity's past achievements and future goals.
Giving to charitable organizations can be immensely satisfying, whether you’re tossing a few bills into a donation box or making a long-term commitment of financial support. As your wealth grows, however, you’ll have the opportunity to amplify the value of your gifts through sophisticated structures that benefit yourself, your family, and the organizations you believe in. Talk to your financial professional about which charitable giving vehicles will work best for you.
This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
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