Helping others and strengthening your community can be important and fulfilling ways to use your resources. Many people have a tradition of making charitable gifts during the holidays. However, incorporating giving into your weekly or monthly financial plan lets you spread joy throughout the year.
Make Giving a Priority in Your Financial Plan
If you want to be intentional with your giving, a helpful first step could be to treat your charitable contributions as a top priority when budgeting. This is similar to how you may “pay yourself first" and have retirement or savings contributions taken directly out of your paycheck. Or how members of religious organizations may give a portion of their income (a tithe).
It's up to you to decide how much you want to give—it could be a set amount or a percentage of your income. And the amount may change as you need to adjust your budget.
Once you determine what works, you could have the money directly deposited into an account you set up for charitable giving. Or, perhaps you track your giving fund using budgeting software or a spreadsheet.
If you're not financially able to give as much as you'd like, you can alternatively look for ways to volunteer your time instead. When there's a little wiggle room in your budget, you could set aside money in a giving fund. Then “pay yourself" from the fund for every hour you volunteer.
Consider the Specific Causes and People You Want to Support
You'll also need to decide who you want to support with your money or time. There could be individual organizations that you already know and like, such as a local food bank. Or a more general goal—such as educational access—and you'll want to do more research to find out which organizations best support the cause.
Once you select the recipients, consider signing up for automatic monthly contributions or routine volunteer shifts. The organization may benefit from having a steady stream of support instead of large contributions once or twice a year.
You can also look to see if your employer has a charitable contribution matching program. If it does, you can increase your impact by asking the company to make contributions as well. Although, some companies restrict the types of charitable organizations that qualify and have a maximum matching amount.
Additionally, you might want to set aside some of the money in your giving fund for emergencies. You'll then be able to pull from it without hesitancy when you see a GoFundMe request or if a family member or friend asks you for help. If there's money left over at the end of the year, you could use it to help support coat and toy drives.
Research Charitable Organizations Before Making Donations
You may want to research the specific organizations you're considering supporting to ensure your goals align, and they'll effectively use your money or time. You can use sites like Charity Navigator, CharityWatch, and GuideStar to see ratings and analyses of charities.
Researching organizations can be especially important if there's a headline-grabbing incident. Unfortunately, fraudsters often set up fake charities after major events that inspire giving, such as natural disasters.
Understand the Tax Consequences
Most people don't give away money because of tax breaks, but it can still be important to understand how charitable giving can impact your taxes.
Charitable gifts may be tax-deductible if you're giving to a tax-exempt 501(c)(3) organization. However, a gift to a friend or contribution to an individual GoFundMe campaign generally isn't tax-deductible. Additionally, you can't take a deduction for the time you volunteer. But you may be able to deduct related expenses, such as travel or commuting costs.
It's also important to understand that most charitable gifts are itemized deductions. According to The Tax Foundation, the majority of taxpayers—about 86.3 percent in 2019—use the standard deduction. As a result, even gifts that qualify for tax deductions might not wind up impacting your taxes.
There is an exception in 2021 that lets you deduct up to $300 in eligible cash contributions as an “above-the-line" deduction—or up to $600 if you're married and filing jointly. Meaning, you can benefit even if you use the standard deduction. But knowing whether additional donations (or any donations during other years) will impact your taxes can help you give more effectively.
For example, if you don't itemize your deductions, you may want to ask the charities you want to support if they're affiliated with a 501(c)(4) organization. These are also tax-exempt organizations, but they have fewer limits on their lobbying activity, and they're allowed to endorse political candidates and the donations aren't tax deductible.
Donations to 501(c)(4)s aren't tax-deductible. However, if you're not going to benefit from a tax deduction anyway, you could support the arm of the organization that might not get as much financial support from others.
Revisit Your Plan Each Year
Set aside time each year to revisit your giving plan and make sure it still aligns with your values and budget. You might find you can afford to give more money or volunteer more often or that you need to pull back a little to meet your other goals. You could also incorporate the review into an annual financial checkup. Or, if that's not something you've done before, start a new practice of reviewing them together at least once a year.
