Smart Charitable Planning

David L. Johanson |

Individuals, foundations, bequests, and corporations gave an estimated $449.6 billion to U.S. charities in 2019.  Individuals accounted for an estimated $309.7 billion, up 4.7% in 2019 versus the prior year.  Foundations added an estimated $75.7 billion, while another $43.2 billion was given by bequest.

We tend to think about charitable donations around the holidays.  It is year-end and your gift to a charity may be sparked not only by your desire to help others, but by tax planning strategies.

The standard deduction is much larger today thanks to 2018’s tax reform, which reduced the incentive to give for some folks.  Gifts to a charity can only reduce your tax bill if you itemize when filing.  If you were unable to itemize, 2020 came with a small concession.  You could deduct up to $300 of cash donations without having to itemize.

Let’s review seven potential potholes to avoid when it comes to charitable giving.

1. Spreading limited dollars over too many causes.  I call this “trying to butter everyone’s bread.”  There are plenty of worthy charities, however it might be a good idea to concentrate your resources on causes you are most passionate about.

You might consider educational charities, culture and the arts, health and organizations that look for treatments and cures for diseases, charities that benefit animals or the environment, your church or place of worship, human services, international relief, or organizations that support the poor in your community.

The choices are almost limitless.  Your resources are not.

2. Getting the best return.  You have found charities that meet your criteria.  For many, we want the best return on our dollar.  We want our cash to be spent and invested wisely, not frittered away by large administrative costs.

According to CharityWatch, “Ask how much of your donation goes for general administration and fundraising expenses and how much is left for the program services you want to support.  Most highly efficient charities spend 75% or more on programs.

Keep in mind that newer groups and those that are working on less popular issues may find it necessary to spend a greater percentage on fundraising and administrative costs than well-established, popular groups.”

According to Smart Asset[1], which reviewed a report by the Tampa Bay Times and The Center for Investigative Reporting, 50 charities collected more than $1.35 billion in donations.  Yet, $970 million went not to worthy recipients, but to the people who collected the money.

You desire to support your cause, not enrich the fundraisers.

A small effort on your part, i.e., “kicking the tires” of the charity, will go a long way.  There are several charity watchdogs you can find online.  Do your homework.  You may find your decision reinforced by what you find, or you may decide to steer clear of a particular organization based on your research.

3. Skip the middleman.  Give directly to the charity and avoid solicitors.  The middleman gets paid to raise funds.  That is a haircut on your donation you will want to avoid.

4. Steer clear of emotional appeals.  This is tricky and difficult.  We want to help.  We feel good about ourselves when we share our blessings with others who are less fortunate.  It is part of who we are.  Emotional appeals pull at our heartstrings.  No one, including myself, is immune to what appear to be worthy charities.

Just be careful.  You may want to concentrate on causes that have special meaning to you.

Furthermore, be careful about what might be called the flavor of the month.  For instance, when a disaster occurs, there are reputable outfits we are all familiar with.

Sadly, fraudsters can also play on our desire to help.  Donate here and little to no money will make its way to those suffering from a natural disaster.  Instead, your funds may simply line the pockets of scammers.

5. Why wait until the last minute?  Many nonprofits get a big chunk of cash at year-end.  If possible, you can set up monthly payments that help even out the cash flow of these organizations, making it easier on their budgets—and your finances.

6. Rethink the small donation.  Ten dollars is ten dollars, and plenty of ten-dollar donations will add up, but processing costs for charities are often high.  Besides, if you give once, you will probably be inundated by requests that raise a nonprofit’s costs, diluting the impact of your one-time gift.

7. Failure to develop a strategy.  As I have said, we are tempted to respond when we hear a well-crafted message.  Sometimes, it is a worthy cause.  Our desire to help is admirable, and it speaks volumes about who we, but be careful about exhausting limited finances and reducing donations to causes you care about the most.