Charity is something we’re all familiar with in one form or another. By definition, it’s something we do to help those in need. It can take many forms, and its impact can spread across the world. But did you know that giving can also positively impact your own financial situation and improve your life? As a Certified Financial Planner and president of a charitable organization, I have some insight and tips on how charitable giving not only benefits the recipients, but also those doing the giving.
If you’ve ever made a charitable donation, you understand the good feeling of giving to those less fortunate. And when I say give, I’m not referring to simply writing a check. Although a check is wonderful for recipients, it doesn’t offer much personal satisfaction or gratification to the donor. Don’t get me wrong, one shouldn’t give simply to get something in return, but it’s my opinion that something is lost by not making it more personal.
I’ve taken my wife and son to Ireland the last two summers. Both times we explained to our son how fortunate we are to travel and that it’s important to appreciate what we have and look for ways to give back. On each trip, my son gave to the homeless in Dublin. We took him to a store to buy fruit, and then he gave it to a group of people. It was a small gesture, but the smiles and looks of appreciation could not have been equaled any other way. It felt good to him to do something for someone else.
The charity my wife and I run supports entrepreneurs in Wisconsin and South Africa. While they are worlds apart, we make a point to be personally involved in the giving process. Checks are written, but that’s only a small part of the process. Giving should be done in a way that makes you excited—you should be passionate about it. We also make a point of visiting the recipients. While there are financial benefits to charitable giving (which I will get to later), being personally involved not only insures your hard-earned dollars are being used correctly, but that you’re able to see the effects of what you’re doing.
Through our charity, we support the WI YES competition each June, which is a statewide competition among student entrepreneurs. It’s inspiring to see the energy and creative ideas they come up with, and supporting them is a great way to give to them and our community.
We also support a high school in a South African township to help institute a new education technology that allows the students to learn the most up-to-date material with computers and smart devices instead of using books that are outdated. We could have just sent money, but instead I’ve made the trip to the school twice, helping the kids get set up on the new platform. To have conversations with them, see their smiles, and make new friends is such a great feeling—one you can’t get with a check.
Financial Benefits of Charitable Giving
Giving can help you financially in a number of ways.
• Tax deductions—check with your tax professional. Charitable contributions can, within IRS limits, be deducted. Generally, you can deduct up to 60 percent of your adjusted gross income for charitable contributions. This is a great way to reduce your tax liability while also supporting causes you are passionate about.
• Non-cash donations. You don’t have to give cash to benefit financially. Although there are rules for donating property, clothes, household goods, real estate, cars, etc., you can deduct the fair market value of these donations on your taxes. Make sure you keep detailed records of donations and how you determined the fair market value.
• Required Minimum Distributions (RMDs) from your IRA—when you turn 70 1/2, you’re required to start taking money out of your traditional IRA, 401k, 403b, etc., retirement accounts. If you find yourself in a financial situation where you don’t need these retirement distributions, the IRS permits, with limits, that instead of taking your RMD personally, you can give the money to a qualified charity. By doing so, you’ll not only satisfy the RMD annual requirement, but the entire amount is tax free since it went to a charity. As always, consult your tax professional and financial advisor.
Who should you donate to? There are an endless number of choices. My advice is to pick two to three things you’re passionate about—they could be your church, a school, a shelter, a clean-water project in a third world country, etc. If you give to something you’re passionate about, you’ll be more involved. Being involved will bring you more personal fulfilment. At the same time, you’ll receive financial benefits from doing good. Seems like a win-win.
Derek Notman is a Certified Financial Planner® and Founder of Intrepid Wealth Partners LLC. intrepidwealthpartners.com