YOUR GUIDE TO GIVING
Kiplinger's Personal Finance|December 2021
Take a closer look at whether you’re getting the most bang for your donated bucks.
RIVAN STINSON

When the Tax Cuts and Jobs Act nearly doubled the standard deduction starting with the 2018 tax year, charities and tax experts expected donations to drop. Nearly one-third of taxpayers itemized deductions—including charitable giving—before the tax law overhaul, and the number of itemizers fell to 11% in 2018. Because charitable givers would no longer have the same tax-deduction incentive, the thinking went, charitable giving would suffer.

Indeed, giving by individual donors dipped 4.2% in 2018 from the previous year, according to Giving USA Foundation and the Lilly Family School of Philanthropy at Indiana University. But in 2019, donations bounced back 4.7%. And charitable giving kept rising dramatically as Americans responded to the pandemic and a variety of natural disasters. In a recent Fidelity Charitable study, 27% of donors said they gave more in 2020 than the year before.

The pandemic also changed how some people give. Individual donors, corporations and family foundations gifted more money to general need funds or to a charity’s general operating fund instead of writing a check for a specific project. Some projects—such as after-school programs—were on hiatus due to local shutdowns, and donors became more concerned about addressing pressing needs, particularly food and housing.

If you tend to bunch your donations at the end of the year, take some time to vet the groups that have been the beneficiaries of your giving, and perhaps include other worthy charities. And consider strategies to make your giving into an all-year-long enterprise. You may even want to turn your charitable giving into a family affair.

Maximizing the tax benefits of your largesse is also important. You will have to itemize deductions on your tax return instead of taking the standard deduction to get a break for large contributions. But if you don’t itemize deductions, for 2021 you can still write off cash donations up to $600 if you’re married and file a joint return or $300 if you’re filing an individual or headof-household return (see “Smart Moves to Make Before Year-End,” on page 42).

THE ADVANTAGES OF A DONOR-ADVISED FUND

One flexible way to organize your giving is through a donor-advised fund. A DAF is an investment account used for the purpose of giving to charity. You can take a tax deduction for money you contribute to a donor-advised fund in the year you invest it. The money grows tax-free while you decide which charities you want to receive your donation.

Donor-advised funds are available through financial-services firms such as Fidelity, Schwab and Vanguard, independent groups such as the National Philanthropic Trust, community foundations, and “single-issue charities,” such as hospitals, universities and religious organizations.

As with any type of investing account, pay attention to the administration and investment fees charged by the firm. Fidelity Charitable, Schwab Charitable and Vanguard Charitable charge an annual administration fee of 0.60% or $100, whichever is greater, on the first $500,000 (amounts greater than $500,000 have a tiered fee structure). The investment fees vary. Fidelity, for example, charges investment fees ranging from 0.015% to 1.04%, depending on the mutual fund. For Fidelity and Schwab, there is no minimum to open an account and no minimum-balance requirement to keep it open. Vanguard Charitable requires a $25,000 minimum to open a donor-advised fund.

You can also open a donor-advised fund at a community foundation (go to www.cof.org/page/communityfoundation-locator). Many community funds require a minimum contribution that ranges from $5,000 to $25,000 or more.

“You really want a donor-advised fund with a low-fee structure so more of your dollars can work harder—and more efficiently—for the charities you plan to support over time,” says Scott Ward, a certified financial planner and director of relationship management services for financial advisory firm Johnson Sterling. Low fees will also preserve more of your legacy if you want the next generation of your family to continue your charitable work.

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