At the end of every year, people often scramble to wrap up their charitable giving by Dec. 31. A little planning throughout the year can go a long way to avoid the last-minute rush. Make 2014 the year you get ahead of your charitable contributions. It can be more effective for you and those who benefit from your giving. Here are five steps to consider as you pursue your charitable goals over 2014 and beyond:
1 – Make a plan
Just like other aspects of your financial life, most of your charitable giving should meet specific goals you have in mind. Take some time in the early months of the year to assess the causes you would most like to support and determine your giving priorities. You also may want to estimate your income for 2014 and set aside a percentage that you’d like to donate.
2 – Establish automatic plans
Some charities allow you to make periodic contributions automatically using a credit card or a bank debit. You may find it easier to make a larger donation when you give a little bit at a time. Check with your favored charities to see if an automatic plan is available so you can implement a regular giving strategy. Not only does this approach make it easier for you, it also helps the charity as they receive systematic donations throughout the year.
3 – Explore the potential for employer-matching donations
Some employers provide matching donations (up to a certain amount) of your own contributions to a specific charity. It multiplies your gift and can make a big difference for charities. If your employer offers a match, do your homework and make sure you’re taking advantage of this benefit.
4 – Understand the tax ramifications
The general rule of thumb is that most charitable gifts can only be deducted from your taxes if you itemize deductions. In 2014, the standard deduction for those who choose not to itemize is $12,400 for married couples and $6,200 for a single tax filer. Those who don’t itemize deductions can still save on taxes by gifting appreciated assets to charity. This may be particularly effective for those with higher incomes who would be subject to an accelerated capital gains tax rate of 20 percent (the standard capital gains tax rate is either 0 percent or 15 percent, depending on your tax bracket).
Another important tax consideration is a restriction on itemized deductions for higher income individuals (known as the Pease Provision). It limits itemized deductions for those with Adjusted Gross Incomes above $254,200 (single tax filers) and $305,050 (married couples filing a joint return) in 2014. You should check with your tax advisor to learn more about how this rule could affect the tax benefit of your contributions.
5 – Consider the longer term
Charitable giving isn’t simply a year-to-year strategy. As you get older, you want to think about how you can effectively manage your estate, while also benefiting your favorite causes. Vehicles such as Charitable Remainder Trusts can help you leave a legacy that will last well beyond your lifetime. Discuss these matters with your financial, legal and tax advisors to see what options might work best for you.