4 Things to Consider When Planning for Year-End Charitable Giving

Piles of $1 billions with red bows on them. — (Image credit: Getty Images)

While many thought the pandemic would hinder charitable giving, studies show that’s not the case. In fact, overall charitable giving increased 3.8% in 2020. Individual giving led the way, comprising 78% of total giving. Another study indicated that those directly affected by the pandemic were 9% more likely to donate to charity than others. This demographic also contributed 9.2% more dollars than did those who were less personally affected by the pandemic.

5 Tips to Make Your Year-End Giving Go Further

With the end of the year quickly approaching, I believe we will end the year with even greater gift-giving than what we witnessed in 2020. There are, however, a few things to keep in mind as you approach Dec. 31 with your charitable plans still in flux.

’Tis the season for giving

First of all, recognize that December is a big month for charities, and you are not alone if you’ve not yet made donations. Approximately 30% of annual giving happens in December, with about 10% of all annual donations coming in the last three days of the year. My organization, for example, processes a quarter of its annual grant requests every December, and we, like many donor-advised fund providers, are seeing an extra surge of requests during these current December days.

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It’s a logical statistic. People are more generous around the holidays; year-end donations are tax deductible, and let’s face it, life can be busy, and we do tend to put off some activities until a deadline approaches!

1. Start with a Plan

Instead of jumping in without a road map, we suggest you first put together a strategic plan. Like most things in life, having a plan will generally give you the upper hand. You might ask yourself, “How can I give to charity while making sure I receive as many tax advantages as possible? Do I know where and how I would like to give?” Ask yourself these questions and start a list of everything you would like to get out of the experience.

2. Take Advantage of the Special Charitable Tax Deduction

Consider taking advantage of the special charitable tax deductions, enacted as part of the COVID-19 relief package and carried over into 2021. One allows a full deduction in 2021 for donors making gifts to qualified charities up to 100% of their income (Note: There are some limitations on what defines a “qualified charity.”) The other provision allows all taxpayers to deduct up to $300 for single filers and $600 for joint filers for donations to qualifying charities on their 2021 federal-income-tax return, even if they do not itemize their deductions.

As the IRS website explains: “Ordinarily, individuals who elect to take the standard deduction cannot claim a deduction for their charitable contributions. The law now permits these individuals to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations.”

Unless Congress extends these, both provisions expire on Jan. 1, 2022.

3. Consider How Inflationary Pressures Affect Charitable Giving

It’s not just your own pocketbook that has been hit by inflation. While it’s been a great year for charitable giving, the need for giving isn’t slowing down, especially given the challenges of inflationary pressures.

QCDs: A Great Way to Give Yourself (and the Charities You Love) a Gift This Year

Most Americans don’t need me to tell them a dollar doesn’t go as far as it used to. They’re living it. The U.S. Bureau of Labor Statistics has already announced that consumer prices are up 6.8% from this time one year ago. This means that the rising cost of goods and services is eroding not only the value of charitable donations, but consequently shrinks what charities can do with the same level of income.

For organizations known for stretching a dollar, it will become that much harder for them to maintain the same level of operations. For example, if food costs more, then soup kitchens aren’t going to be able to feed the same number of people if budgets don’t increase. This is one reason why it is critical that giving levels continue rising, and that those who are able to actually give more.

4. Don’t Disregard Your Giving Strategy to Meet a Tax Deadline

There’s a well-known rule about grocery shopping: Don’t go to the store hungry, because you might make impulsive (read “bad”) decisions. The same applies to your year-end giving. Yes, for tax reasons you may need to give now, but that doesn’t mean you should compromise on your strategy or rush giving decisions without thoughtful consideration of what kind of charities you want to support. This is where a giving vehicle such as a donor-advised fund (DAF) can be helpful.

A DAF allows you to have charitable dollars ready to go to a deserving charity on your own schedule. With a DAF, you won’t have to rush to meet an end-of-year deadline. Instead, you’ll have the freedom to take your time making thoughtful charitable contributions from your account.

DAFs are also one of the most tax-advantaged ways to give to charity — while at the same time simplifying the giving process. Regardless of the giving vehicle you choose, make sure you take the time to consider whether a DAF is the right fit for you, and that it aligns fully with your overall charitable goals. There are nearly a thousand DAF providers in the U.S. It won’t be hard to find one that works for you.

Hopefully next year we will look back on 2021 with great pride in terms of U.S. charitable behavior. There are great needs and many worthy non-profits addressing those. Don’t let December slip by without considering mutually beneficial ways you can make a difference now.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Lawson Bader has served as president and CEO of DonorsTrust since 2015. He has had 20 years' experience leading free-market research and advocacy groups, including the Competitive Enterprise Institute and the Mercatus Center. DonorsTrust is a community foundation safeguarding the intent of accountholders who seek to promote charities that address civic concerns, are mostly privately funded, do not increase the size and scope of government, and promote free enterprise and personal responsibility.