6 Must-Knows Before Planning Your Charitable Contributions

Whatever your reason for giving this year, it’s important to know how your charitable contributions can impact your financial plan. In fact, being strategic and intentional with your charitable contributions can create tax benefits for both you and your chosen charity.

Feeling charitable? Read on to prepare with 6 details to keep in mind before jumping in. 

1. Research Charitable Organizations

Maximize the impact your monetary donation can have by selecting reputable and transparent organizations. A qualified charity will have 501(c)(3) status, indicating it’s federally recognized as a non-profit organization.

Third-party websites like Charity Navigator, Charity Watch and Give Well offer unbiased, independent ratings and evaluations of charitable organizations. These sites can offer important insights into how money donated is distributed. If you’re considering making a sizable donation, it may be helpful to speak directly with the chosen charity to discuss how the gift will be utilized.

2. Donate to the Causes That Mean the Most To You

These might be considered “efficient organizations” or groups that are impactful not only socially but to you as an individual. It’s very likely you already have a few organizations in mind based on your experiences and your network. If not, connect with your friends and family to learn more about their charity interests and if these align with what you’re passionate about. 

Doing web research or collecting news articles associated with causes you’ve already chosen will often highlight similar organizations that are also doing great work. 

3. Make Sure Your Donation is Tax-Deductible

Along the lines of doing your research prior to contributing charitably, you should ensure that your donation is tax-deductible. You must donate to a qualified charitable organization and they must be tax-exempt 501(c)(3) or fall under Section 170(c) of the IRC.¹

You may take a tax deduction for contributions made to: 

• Churches and other religious organizations
• American Red Cross, Goodwill, the Salvation Army and CARE
• Tax-exempt educational organizations
• Tax-exempt hospitals and some medical research organizations
• Government agencies, such as a state or division of a state if the funds are used for public purposes
• Nonprofit volunteer fire companies
• Some veterans' groups and fraternal societies 
• Some private foundations that distribute the contributions they receive to public charities, and some private operating foundations
• Some membership organizations that receive more than a third of their contributions from the general public
• Boy Scouts and Girl Scouts of America
• Boys Clubs and Girls Clubs of America

Many charitable organizations qualify for tax-deductible donations, but not all, making it important to know whether your chosen group qualifies. You may search in the IRS online database for all of the acceptable charities, or check to see if the organization is designated with 501(c)(3).

4. Donate More Than Just Cash 

While giving a cash value might feel like the most straightforward way to contribute, there may be other forms of assets you can donate in order to get the most back. Depending on the accessibility of your assets, contributions may include forms of property, travel expenses, uniform costs or appreciated assets. 

Being creative with your donations offers the opportunity to rid yourself of items that you no longer use but could mean the world to someone with different needs. 

5. Utilize Your IRA's Required Minimum Distribution 

Once you turn 72, the IRS mandates minimum distributions from your tax-deferred retirement accounts. This Required Minimum Distribution (RMD) is fully taxable as ordinary income.  To avoid the tax and still fulfill your RMD, you can complete a qualified charitable distribution (QCD) by giving all or some of your RMD money to a qualified charity. 

With a QCD, your distribution check goes directly from your IRA to the charity. It's because you never actually receive the money (and instead have it immediately and directly donated), that you're able to exclude these funds from your taxable income. 

IMPORTANT: With the QCD, your IRA distribution must go directly from your IRA to your chosen charity, otherwise it becomes fully taxable. So make sure your IRA custodian understands this and confirm that they make the check payable to your chosen charity. 

6. Feel the Benefits    

Giving to those in need and being a voice for organizations that spark passion within you is an amazing feeling. Being aware of the additional benefits that being charitable may offer can be a close second.

Tax Exemptions

Various exemptions apply when donating and if you are sure to keep in mind a few details, you will feel the perk of giving back in a few ways. Always remember to itemize your deductions, request a receipt when donating, get an independent appraisal, subtract the value of any benefits and talk to a tax professional. 

Employer Matches

Very often companies encourage their employees to give back to their communities by matching contributions up to a certain amount. It’s important to speak with your human resources department about these details prior to contributing in order to keep your priorities and your finances in order.