“Every dollar makes a difference.”— Michael Bloomberg
Christmas is notoriously a season of giving. Yet there are plenty of opportunities to give, beyond your friends and family. This is also the perfect time for charitable giving. Especially to causes that are dear to your heart.
Not only can giving make a positive impact in the world—it can help you reduce your tax bill before January 1st rolls around. And though the standard deduction was raised in 2018, we still believe giving should be a priority.
In fact, with the introduction of the CARES Act, 2020 may be the best time to give. Here are some of our thoughts on why giving matters (and a few strategies to get your deduction this year and beyond).
Why Charitable Giving Matters
1. Giving Makes an Impact.
Charitable organizations make a significant impact on the world. Without these organizations, those in need would either be reliant on the government, or the goodwill of their friends and family. Think of all the causes that would go unnoticed or under-funded without organizations?
Charitable organizations can make an impact in areas like:
- Human services
- Health and science
- Community development
- Disaster relief
- Arts, culture and humanities
- Environmental support
- Animal welfare
- And so much more
For statistics on where charitable donations go, check out Philanthropy Roundtable.
A PEM-favorite is the Heifer International organization, which brings livestock (and training) to developing countries, which can provide food and income. You can help families and entire communities become self-reliant entrepreneurs.
2. Giving Improves Our Money Mindset
There are plenty of practical reasons to give to charities; yet there’s also a lot to be said for what it does for the giver. The idea of giving challenges our thoughts of “not enough.” It encourages us to THINK with our Prosperity mindset, which is the first of the 12 Principles of Prosperity.
It also challenges the “greed-monster,” which we can all fall victim to now and then. Whenever we’re tempted to think that hoarding solves all of our problems, giving can break the pattern. You’ll find that “putting your money where your mouth is” and approaching money from a basis of principle, will help you be more principled in your personal spending too.
3. Giving Changes Self-Perception
Which would you rather be: the saver, investor, or consumer? Or would you rather be the giver, contributor, or difference-maker?
It’s not wrong to be the former. However, when we view ourselves through the impact, we make on the world, it improves our confidence. In fact, in order to be a contributor, you often have to have habits of saving or investing. Yet being a saver or investor does not require that you are also generous.
Giving allows us to become active participants in the causes that are most important to us, instead of watching from the sidelines. Giving helps us connect to our purpose in the world and take ownership of the causes that are most important to us.
Rather than offering lip-service, giving takes action and makes change possible.
4. Giving Brings Discipline
In his book, Millionaire Women Next Door, Thomas J. Stanley presents the difference between the wealthy who give generously, and the wealthy who give minimally. What he found was that women who gave 10% of their income built more wealth than their counterparts who gave only 1%.
His theory is that those who learn to give build the discipline required to build wealth. This is because they were giving even in lean times–they didn’t wait until they were rich. To give when you have plenty is one thing. To give even in tough times requires both mental and financial discipline. It’s this discipline that leads to successful wealth-building too.
5. Giving Increases Happiness
Stanley’s research also found that those who were givers experienced more happiness, joy, and respect in their lives. Giving wasn’t a financial burden for the women he studied, it was something that brought them fulfillment.
Giving also doesn’t require tons of money. Even small donations add up for charities of all sizes. Nor is giving limited to money. Organizations of all kinds rely on volunteers–which can also help you build valuable life skills and make lifelong connections.
Strategies for Getting Your Tax Deduction
Although taxes changed in big ways in 2018 (and got even more complicated in 2020), charitable giving was miraculously left alone in the tax reform. The biggest change was to the standard deduction, which has reduced the number of people who itemize their deductions.
However, the introduction of the CARES Act has made this the optimal time to give. If you do plan on taking the standard deduction, the law will allow you to claim an above-the-line donation of up to $300 to charity.
Furthermore, donors who do plan to itemize their deductions have the option to take 100% of AGI deduction limit for cash donations. Plus, you can carry deduction amounts above this limit up to 5 years. These donations must go directly to operating charities.
Here are a few strategies that can help you give with your pre-tax dollars and still get a deduction.
Give Every Other Year
Beyond 2020, it may be wise to employ the “every other year” strategy. While 2020 is a great opportunity to give, the future is still uncertain. Doubling-up your donations every other year can help you itemize your deductions… every other year.
Donor Advised Funds
If you have some flexibility in your ability to give, you can donate your “every other year” amount directly to a donor-advised fund, or DAF. These operate as holding tanks for donations destined for charity, yet can be distributed at any time.
Donating to a DAF will allow you to take the deduction in the year you make it, while the fund can donate those assets periodically. This way, you can make larger donations less frequently, without disrupting the flow to the charity you support.
Direct Gifts from IRAs
Those 70 ½ or older can make “qualified charitable distributions,” also called IRA rollover gifts.Donors can make tax-free gifts up to $100,000 from their IRAs. These also qualify as part of their mandatory annual withdrawal.
By giving funds to charity directly from your IRA, you won’t have to report the income on your tax returns. This will have the same results as reporting your withdrawal and then fully deducting your gift.
A Great Year for Giving
While 2020 is not the year we expected, there have been many opportunities for growth. The ability to make you charitable donations more impactful is a great bonus. We hope you feel more inspired to give in this December, and more empowered to give in the years going forward.
Finally, as Bob Burg’s Go-Giver book explains so well, remember that it truly is more blessed to give than to receive. If we are longing for success, rather than going out and GETTING it, we want to learn how to GIVE our way to a more fulfilled life.
If there’s anything the Prosperity Economics Movement can do for you, we encourage you to reach out and connect with us. We’ll put you in touch with someone from our network of Advisors.