- The practice of charitable giving is a time-honored tradition going back centuries that, in present day, continues most commonly during what is known as Giving Season during the last two months of the year.
- Giving can help lower your tax burden, while enabling you to support causes dear to your heart.
- Donor-advised funds provide you with the opportunity to make contributions to many charities over an extended period.
The end of the year is a time for reflection and renewal - and for giving. The practice of charitable giving is a time-honored tradition going back centuries that, in present day, continues most commonly during There are many reasons people feel a philanthropic call to action, each with their own set of benefits. Here are three common motivations for making gifts during giving season.
1. Lessen your tax burden, regardless of what tax bracket you fall into
Many choose to give because of the tax benefits they might receive.
"Generally, a donor will get an income tax deduction relating to assets they give to charity," said Jeffrey Herman, East Coast Head of Wealth Planning and Advice for J.P. Morgan Wealth Management. "For appreciated assets, they might get a deduction for the fair market value of what they give, or they might get a deduction limited to the basis of the assets they give- for example, appreciated assets like stocks, mutual funds or some other non-cash asset."
However, it's important to remember that there is a limit to the amount you can deduct from your tax bill on an annual basis, based on a percentage of your adjusted gross income (AGI) for the year.
For more information, contact your tax specialist.
"Even for clients who are giving money to a cause they're passionate about, they may still want to be as tax efficient as possible.'"
2. Go the extra mile for missions and charitable goals near and dear to your heart
People will often give because they have causes they care about, or they are moved by issues that are happening around them.
"Both approaches are valid," said Maria Alejandra Oltra, a Philanthropy Advisor for J.P. Morgan Private Bank. "You can give to causes that are 'timeless' - things like education or culture, for instance - and you can give based on circumstances; for example, COVID-19, health care or racial equity."
Either way, giving season is the time when non-governmental organizations (NGOs) are heavily fundraising because they know donors are thinking about year-end tax planning and making financial decisions based on their annual incomes and how much they have left to give.
"There's also a spirit of starting a new year. So if you give an organization money, then they'll be able to do new things. The dynamic of starting a new year is guiding a lot of that," Oltra said.
3. Enhance your legacy for future generations
Donor-advised funds provide you with the opportunity to share your values and desire to support organizations with your next generations. Best of all, they allow you to make contributions to many charities over an extended period.
"Many times people want to give a certain amount of money, but they don't want to give that much money to one specific charity right away," said Herman. "People can create charitable vehicles for their charitable gifts that allow them to designate money for charitable purposes, but not have to choose the end charity right away, potentially creating a philanthropic vehicle for themselves and their families."
Specifically, donor-advised funds are a great option for those who want to create a legacy for future generations. They are vehicles where your charitable funds can appreciate, generate income and grow income-tax-free over time. Best of all, you don't need to choose the charity to donate to immediately. You can wait as long as you want to distribute the money, and have your children and grandchildren be involved in the process.
"So even though people are often motivated during giving season by their year-end tax planning and want to make charitable gifts now, if they don't know what charities or causes they ultimately would like to support, they could make their philanthropic gifts into a donor-advised fund (or a private foundation) and choose their end charities over time," Herman said.
For questions about giving and/or donor-advised funds, please reach out to your financial advisor.