The more tech professionals earn, the more they start thinking about giving back to their community. If you’re in a healthy financial position to meet your needs today and goals for tomorrow, maybe you’re looking for more meaningful ways to spend the rest.
Giving generously to your favorite organization is a personally fulfilling endeavor and can lead to some notable tax advantages. The key is to be strategic about incorporating charitable giving into your greater financial plan.
Let’s look at the benefits of charitable giving and how to incorporate it into your financial life.
Aligning Your Values with Your Giving
Before you start strategizing, you must decide what causes matter most to you and what sort of gifting legacy you’d like to leave.
For any of the tax-minimization strategies we’ll cover in this article, you’ll need to make sure your selected organizations qualify in the eyes of the IRS. If you have a few charities already in mind, run them through the IRS’s Tax Exempt Organization database. This database will help you determine if an organization can receive tax-deductible contributions.
The Tax Advantages of Charitable Giving
Anytime you donate, whether it’s to the Santa ringing the bell on the corner or a local charity 5K, you can deduct that donation from your taxable income for the year — as long as your deductions are itemized.
For many, the thought of making charitable giving a tax-minimization strategy stops there. However, there are several ways to maximize the impact of your donation and minimize your tax liability — including establishing a donor-advised fund and donating appreciated assets.
If you’re serious about establishing a tradition of lifelong giving, a donor-advised fund (DAF) is an option worth considering. A DAF is created through a sponsoring organization, typically a 501(c)(3) nonprofit. They have legal ownership over the fund, meaning once contributions are made, you cannot reaccess them. The benefit is that you can deduct contributions to the DAF from your taxable income immediately.
Some DAFs have an investing component that allows your contributions to earn additional tax-free growth over time. You have advisory privileges while not owning the DAF or its funds. As an advisor, you can indicate which charities you’d like to receive distributions from the fund.
DAFs can be funded with non-cash contributions like appreciated stocks, bonds, or other assets.
Did you know you can donate stocks to charitable organizations? Donating assets that have appreciated is one way to both support your favorite charities and reduce your tax liability.
When stocks are donated directly to a qualifying charity (or a DAF), you do not have to pay capital gains tax on the appreciated value. Plus, you can deduct the total fair market value of the stock from your taxable income.
Here’s another scenario in which you can help others while reducing your tax liability:
Say you have a family member or friend experiencing financial troubles and need help. And suppose you have employer stock that’s risen substantially over the years.
To cash out and give the money to your family member in need, you’d have to pay capital gains tax on the appreciated amount — meaning what you can pass along will be substantially lower. But, if you gift the stock directly to that person instead, they can cash it out and pay the capital gains tax. Assuming they’re in a low tax bracket (due to their financial situation), their capital gains tax liability may be much lower than yours. It can be as low as 0%.
Setting a Charitable Budget
While most people make charitable contributions around the end of the year, most organizations would benefit from consistent, year-long contributions as well. If you want to incorporate charitable giving into your financial plan, consider how your donations will fit into your monthly or quarterly budget.
It’s not wise to sacrifice your other immediate obligations or long-term goals (like retirement or homebuying). Instead, consider where in your pool of discretionary income you can redirect funds toward charitable giving.
Employee Giving Programs in Tech Companies
As tech employers typically offer matching for 401(k) or HSA contributions, many will also match your charitable contributions. As you prepare your charitable giving strategy, check with your HR department to determine if they match or must be specific organizations.
If your company doesn’t offer employer matching, this may be an excellent opportunity to make a case to your HR department about offering it as a future benefit.
Volunteering and Skill-Based Donations
Perhaps creating a robust giving strategy isn’t in the budget, but you’d still like to volunteer your time and expertise. Tech employees are intelligent and highly skilled individuals and no doubt others could benefit from your time and knowledge. Perhaps there’s a program for mentoring women in STEM or organizations that provide computer classes to older adults.
Even if you cannot financially support causes close to your heart, you can still make skill-based and time-based donations — sometimes, those are even more impactful than financial contributions.
Interested in Incorporating Charitable Giving Into Your Comprehensive Financial Plan?
To build a legacy of giving, you must first ensure that your retirement and investment goals are covered. Why? Because you can’t take care of others until you’re sure you’ve taken care of yourself.
When thoughtfully integrated into your greater financial plan, charitable giving is a win-win for tech employees. Not only does it allow you to share your generosity and financial good fortune with others, but it has the potential to create notable tax savings.
We encourage you to embrace a charitable mindset, especially if you want to feel more personally fulfilled and connected to your community. Book a meeting today to learn more about how we can help you develop a charitable giving strategy.