As we come to the end of the year, we all look to December for the holidays as Christmas and Hanukkah approach, and many of us find ourselves in the giving mood. If we are people of faith, we should be giving, and I encourage you to give to your favorite charities. Even if you aren’t a person of faith, you likely still feel the desire to help others this season.
I recently completed the Certified Kingdom Advisor training and was surprised to learn that, according to a recent Barna research study, only 5% of Americans and 12% of born-again Christians tithe (give at least 10% of their income to the church). Is it because we truly don’t have enough money, or are we prioritizing the wrong things? I ask this not to condemn anyone, but to provoke thought and contemplation on the matter. Even if you can’t afford to give a full 10% right now, are you headed in that direction?
I’ll share some ideas that might help you, both this season of giving and in the years to come.
Prioritize Your Spending
Live, Give, Owe (debt and taxes), Grow. Those are the 5 areas of spending. We can only use money for these categories; there is nothing else. For most people the “live” part consumes all of their money. Lifestyle spending for the average American exceeds income. When we spend all of our income and have to pay taxes, we are left with debt to cover the difference. Consider giving and taxes first. It’s not a switch that you can flip instantly and it all works overnight, but a process. Once you know you have enough, it makes giving much easier and more fulfilling.
Ways to Give More
No matter your personal finances, there are ways to make your money go further in making a difference.
Does your company offer a giving match? A lot of companies will match your giving if you ask. Many have giving programs that match your dollars. Look at your benefits package or ask your HR team. You may be surprised.
Using a donor-advised fund? More likely than not you are probably asking “what is a donor-advised fund?” They are an underutilized resource and a great way to amplify your giving. Like a brokerage account or an IRA, this account is designed for efficient giving. People use them because you get a tax deduction in the year you put the money in the fund, even if the money hasn’t been distributed to the charity yet. The IRS allows this type of account to help people get a tax deduction for their giving. Because of the large increase in the standard deduction in the Tax Cuts and Jobs Act of 2017, most people don’t itemize deductions. A married couple filing jointly, now gets a standard deduction of $29,200 for 2024. That means if you add up all your itemized deductions and they are less than that amount, you will simply take the larger number. Imagine you have a mortgage deduction of $10,000, property taxes of $8,000, and you donate $10,000 to charity. Your total itemized deductions are $28,000. It’s better to take the standard deduction to lower your taxable income by $1,200. However, if you decide to set up a donor-advised fund and put in your donations for 2024 and 2025 all this year, then your itemized deductions would be $39,000. This gives you an opportunity to itemize and save more. Next year you can simply make your donations from the donor-advised fund and take the standard deduction. Across the two years, you have saved money on taxes this way for the same amount of giving.
If you are age 72 or older, you are required to take money out of your retirement accounts like 401(k)s and IRAs. These are called required minimum distributions (RMD). Retired and don’t need your RMD?Many people will take this money out of their account, pay taxes, and then donate the money. You don’t have to do that! Instead, contact the custodian of your retirement account, ask them to send the money directly to your favorite charity. You satisfy the RMD requirement and you don’t pay a dime in taxes on that RMD. Make sure you note this for your CPA, so they know that the distribution went directly to the charity and they don’t report it on your tax return.
Remember, it’s better to give than receive, and when you can save money on taxes, you can give more. If you need help with these strategies or other areas of your finances, please reach out.
(Disclaimer: This article is for informational purposes only and is not tax, legal or financial advice. Everyone’s situation is different, so consult a financial advisor. If you would like to connect with me, call 615-619-6919 or email smoran@redbarnfinancial.com.)
