Many people dream of getting rich and becoming a wealthy philanthropist. Ask anyone what they would do if they had millions of extra dollars sitting in the bank, and after taking care of their family’s needs and a few extravagances, the conversation often turns to charitable giving. However, the truth is it’s not necessary to accumulate substantial wealth before making a substantial difference through charitable giving. In fact, donating to charity can benefit you, no matter your net worth, and chances are you will get a lot more back than you give.
If your thoughts on charitable giving are more practical than altruistic, there’s nothing wrong with that; our tax systems incentivize giving to tap into pragmatic motivations and benefit the greater good.
Whatever your motivation or level of giving, philanthropy feels good and being generous always pays off in the end, sometimes in unexpected ways.
9 Benefits of Charitable Giving
1 - Reduced Taxable Income and Tax Rate
As you are probably aware, donating to charity can be an effective way to reduce your tax liability. When you give a donation to a legitimate charity recognized by the IRS, you may be able to reduce your taxable income by up to 50 percent of your adjusted gross income in some cases. Especially if your income is near the next tax bracket, giving can benefit you substantially at tax time.
2 - Support Meaningful Causes
If you care about a particular cause, making a charitable contribution can be a meaningful way to stand behind what you believe in. Maybe a loved one suffered from Alzheimer’s disease and you would like to contribute to research efforts to find a cure. Maybe you grew up in an abusive home so you want to support shelters for women escaping domestic violence. Perhaps you love your rescue dog and want to support your local animal shelter. Whatever the cause and whatever the size of your donation, giving allows you to put your money behind what matters to you.
3 - Help Those in Need
Beyond the causes that are truly meaningful to you personally, there are always people in need. Your financial donation could be a lifeline for a family who lost their home in a fire or natural disaster, a young adult aging out of foster care, homeless veterans, or hungry kids. There’s never any shortage of people who have fallen on hard times, and your commitment to providing aid through charitable giving can ease their suffering.
4 - Boost Your Happiness
If you are feeling down or stuck in a rut, charitable giving may be the key to boosting your happiness. Research has shown that those who give regularly to charity feel more joy, satisfaction, and contentment in life. Whether you are supporting causes that are meaningful to you or using your resources to help those who are in the most need, your reward is a greater sense of purpose and fulfillment. Even if your initial motivation was to get a tax benefit, you may find your mood lifted and even feel a sense of pleasure from giving.
5 - Raise Your Community Profile
People who give generously to organizations tend to gain influence and power within their community. This means you may be invited to join the board, have a say in how the charity operates, or have the opportunity to build relationships with top philanthropic and business leaders in your community. Your giving can raise your visibility and standing and help you reach career, personal, or civic goals.
6 - Improve Your Personal Finances
When you schedule a recurring contribution each month, quarter, or year to a charity of your choice, it can improve your personal money management practices. Making the commitment to donate regularly can help you be more disciplined, motivate you to stay on track, and require you to be more attentive to your finances. This is especially true when you are early in your career and just beginning to develop positive money habits.
7 - Eliminate Excess
Is your garage overflowing with what you consider junk? Are your closets packed with clothes you’ll never wear? Do your kids have so many toys you can barely walk through their room? Do you have a boat in storage that you never use? If so, you’re not alone; accumulating too much stuff is a common problem for Americans.
The good news is, your trash is someone else’s treasure. Free yourself from clutter by donating your unwanted items to charity and they will put them to good use. You can write off the value of each item, and for tax purposes, donating goods is as good as giving money.
8 - Inspire Others
Generosity is contagious. Your charitable giving can inspire your family, friends, coworkers, neighbors and other community members to give as well. They may be inspired to support a cause that’s important to you or your spirit of giving could inspire them to support a cause near and dear to them. Either way, your giving can create a positive ripple effect that spans far beyond your personal contributions.
9 - Leave a Legacy
Giving during your lifetime can extend your legacy far beyond your time on this planet. You may have thought of leaving a generous contribution with your estate, but you might not have considered the lasting impact of the philanthropic efforts you carry out throughout your lifetime. Think about it; you might contribute to programs that last decades after your death or your contribution can make a difference in someone’s life that’s felt for generations. You just never know just how much impact your dollars can make.
Charitable giving can be quite rewarding for the giver. If you plan to increase your charitable giving, be sure to do your research and identify well-managed and fiscally responsible organizations that align with your values and have the correct IRS tax status by running a Tax Exempt Organizational Search (TEOS). Keep organized records of your donations, including receipts, canceled checks, and bank statements, and when donating large amounts, always enlist the help of a financial professional to ensure you get the maximum tax benefit possible.
Russell D. Rivera, CFA, CFP® is the Founder and President of Voice Wealth Management (Voice) in New York, NY. He also likes to think of himself as a Personal CFO and Financial “Therapist” for entrepreneurs, young professionals, and their families. He helps clients make prudent financial decisions regarding spending, saving, investing, and planning while giving a voice to the individual client's financial priorities and experiences.
Content in this material is for general information only and are not intended to provide specific advice or recommendations for any individual.
The information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.