’Tis the season for giving. Beyond exchanging presents with your loved ones, now is the time of year when many people think about giving back to those in need. In fact, a recent poll of 2,000 Americans found that 70% believe the holidays are the best time to give back. (1) This belief is so prevalent that there’s even been a pseudo-holiday created called Giving Tuesday. That begs the question: If so many Americans think donating to charity is important, why are only about 42% actually doing it? (2) If you’re on the fence about starting a charitable gifting strategy, consider these three reasons why gifting to charity is a good idea for you and your financial plan.
1. Giving Is Good for the Soul
It should be no surprise that giving is good for the soul. There’s just something about the thought of truly helping someone in need that puts a little extra pep in our step and a smile on our face. Many studies have shown strong correlations between giving to charity and increased mental and physical health. To name just a few benefits, giving can promote: (3)
- Increased life expectancy
- Decreased blood pressure
- Increased life satisfaction, happiness, and mood
- Higher self-esteem
Giving to charity can also help you lead a more purpose-driven life, one in which you feel productive and meaningful. This is another element that science suggests leads to a longer and happier life.
2. Giving Is Good for the Community
Another reason to consider giving back is its impact on the community as a whole. On an individual level, charitable contributions can help you feel connected and involved with your local community while also promoting positive change. As a business, donations can be a great way to communicate your values. Do you donate to a specific church or religious institution? Or maybe you prefer to donate to schools, hospitals, or animal shelters. Whatever you choose, you can use the donation as a way to support those in your local community, who may in turn support you with their business. This can be especially true if you choose a cause that you know will resonate with your clientele.
3. Giving Is Good for Your Tax Bill
We all know that charitable giving is good for the soul and good for the community, but did you know that it can be good for your tax bill too? There are many gifting strategies that can be used to reduce your current year tax liability, including:
- Bunched charitable giving: This strategy calls for “bunching” multiple years’ worth of contributions into a single donation in order to take advantage of the charitable tax deduction.
- Donor-advised funds (DAFs): With a DAF, you contribute a sum of money up front, then distribute those funds to various nonprofits on your own schedule. In the meantime, your money is invested and grows tax-free. DAFs also allow you to contribute securities and assets other than cash, making it an effective strategy that could potentially save you big come tax season.
- Qualified charitable distributions (QCDs): QCDs involve redirecting the required minimum distribution (RMD) from a qualified retirement account to a charity instead. Each taxpayer can donate up to $100,000 annually (as long as you’re 70½ or older), meaning spouses can donate a combined total of $200,000 each year! This can be a highly effective charitable strategy because it allows you to give to your most important causes, while also reducing your current year tax liability and your overall taxable estate.
- Charitable remainder trusts (CRTs): Thisis an irrevocable trust that provides income for you and your beneficiaries for a set period of time. Once the time frame expires, the remaining trust amount is donated to a charity of your choosing. Depending on which type of CRT you choose, a partial charitable deduction may be available.
No matter how you choose to donate, be sure to take advantage of the tax breaks so you can increase your strategy, setting yourself up to donate more in the future.
Start Giving Today
Now is the time to start giving back to those in need. With all we’ve experienced over the last two years, and with the holiday season upon us, take some time to think about how you can incorporate charitable giving into your financial plan.
At Colorado West Investments, we help our clients live their life by design, not by default. To find out more about how we can help you start a tax-efficient giving strategy, call 970-249-9882 or email michael@wealthwithapurpose.com.
About Michael
Michael Murphy is an associate wealth advisor at Colorado West Investments Inc., a wealth management firm committed to providing exceptional, comprehensive financial services to high-net-worth individuals, business owners, and retirees. Michael is known for building strong relationships with his clients, helping them clarify their goals and values, and partnering with them to design a financial road map that will help them work toward their ideal life. He is passionate about walking his clients through the financial planning process and seeing the confidence and relief on his clients’ faces as a result. Michael has a bachelor’s degree in finance from the University of Northern Colorado and an MBA from the University of Colorado Denver. When he’s not in the office, you can find him outside, likely hiking or mountain biking, or digging into a book. Michael and his wife, Becca, have 6 dogs at home. Becca runs a dog training and boarding facility. To learn more about Michael, connect with him on LinkedIn.
*This material was created for general informational purposes only and is not intended as tax, legal or investment advice. If you are seeking investment advice specific to your needs, please consult with a tax, legal, or financial professional for your specific situation.
This material was prepared by Indigo Marketing Agency.
*Advisors associated with Colorado West Investments, Inc. may be either (1) registered representatives with, and securities offered through LPL Financial, MemberFINRA/SIPC, and investment advisor representatives of Colorado West Investments, Inc. or (2) solely investment advisor representatives of Colorado West Investments Inc., and not affiliated with LPL Financial. Investment advice offered through Colorado West Investments Inc., a registered investment advisor and separate entity from LPL Financial.
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(1) https://www.studyfinds.org/giving-tuesday-americans-good-deeds/
(2) https://www.cbsnews.com/news/charity-donations-us-households-decline/
(3) https://health.clevelandclinic.org/why-giving-is-good-for-your-health/