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5 Steps to Make the Most of Your Charitable Giving

Dear Carrie,

I only have a small budget for charitable giving, but want to make the most of every dollar. Are there ways I can maximize my donations?

—A Reader

Dear Reader,

There's always a special focus on giving during the holidays, and this year the pandemic has created an even greater need to support charities on all levels—local, national and global. And like you, many people are looking for ways to get the most bang for their charitable bucks.  

Fortunately, you don't have to have a lot of money to make a difference in the lives of others. You just need to be thoughtful and strategic, because it's not only how much you give but the way you give that can increase its effectiveness. Here are five steps that will help you devise a plan to stretch every dollar to its maximum impact.

Step 1. Identify your goals

There are hundreds of well-deserving causes—homelessness, the environment, refugees, medical research, arts and humanities, and social justice, just to name a few. And, of course, my favorite cause—financial literacy. How can you decide where and how much to give?

First, find your focus by thinking about why you want to give. Make it personal. What passions and interests motivate you? How does supporting a particular cause reflect your values? Talk to your family and involve them in the decision. If you have children, including them in your giving strategy can lead to new ideas and be an inspiration for them—and you.

Next, narrow down your options to five causes you connect with most. It can help to write a statement about why you want to support each cause and how. This type of values-based giving can make your donation more meaningful and personal, and motivate you to continue to find new ways to give.

Step 2. Establish your giving structure

Next, decide what types of assets you'll give. It can be cash, goods (like used clothing or furniture) as well as real estate or appreciated securities. Donating appreciated assets held for more than one year, including publicly traded stocks, can be particularly effective, not only helping you save on taxes but also netting more to the charity. The type of asset you give and the type of charity you donate to determines the tax deduction. Certain charities like 501c(3) organizations are eligible for tax-deductible donations but there are annual limits to charitable deductions. 

Before making your donation, it can be wise to talk with a financial advisor or tax planner. You can give directly or establish charitable-giving vehicles like a donor advised fund (DAF), a private foundation, or a trust. You can also give through certain types of accounts like an IRA to maximize the amount you give and the tax deduction.

Step 3. Create your giving plan

Instead of focusing just on the current year, it can be helpful to set a three-year charitable giving budget. This type of big-picture thinking can ensure that your charitable-giving goals fit in with your overall financial situation and don't jeopardize your other important goals—like retirement.

Next, do some research. With over 1.5 million nonprofits out there, zeroing in on specific organizations can be a challenge. Sites like Candid (formerly GuideStar), Charity Navigator and Charity Watch can help you find what you’re looking for. Also, get recommendations from friends and experts who are knowledgeable about the causes you want to support. Check with your local community foundation to find nonprofit opportunities close to home.

Once you've identified the specific organizations you want to support, create a short-list and do a deeper review to make sure there are no red flags before you make a contribution.

Step 4. Implement your giving plan

Think about your gift’s purpose, how often you want to give and if there are any specific terms you want to designate. Do you want your gift to be applied to a specific purpose or do you trust the organization to determine its best use? If your gift is ongoing, will it be monthly or annually? While taxes may play a part in how you time your gifts, some families give at specific times of the year—like Memorial Day, Thanksgiving or someone’s birthday—to make the gift more meaningful.

A DAF can be a good choice for ongoing gifts because you can pre-fund it. The DAF is a charity itself where you can donate an amount now (and be eligible for a tax deduction) and make recommendations to gift to multiple charities in the future, often in amounts as little as $50. DAFs also allow you to invest and potentially grow your funds in the meantime.

Regardless of how you give, keep track of your gifts (a DAF will do this for you), and periodically review and refine your charitable plan. That way you can adjust your giving tactics and strategy as your life evolves.

Step 5. Explore further

Whether you're brand new to philanthropy or are a seasoned hand, keep your eyes, ears and mind open to different ways of giving. This includes asking your employer if they match charitable donations, volunteering, or organizing a fundraiser or event to support a cause. You might serve on the board of a nonprofit or offer your professional services. Be flexible. How, where and how much you give today may change as you and your passions and interests change.

To learn more about creating a comprehensive giving strategy, check out the Schwab Charitable Giving Guide. It will help you zero in on the values and causes that are important to you, craft focus statements, engage your family members, determine your charitable giving budget, and ultimately devise a strategic plan.

To me, charitable giving isn't only an act of generosity, but a way we can all enhance our own lives. By giving meaningfully—and strategically—you can derive a deep sense of satisfaction knowing you're making a difference. Happy giving!

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

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