Including charitable giving in your investment plan could make a difference for others throughout the year.
Many Americans make it a priority to support organizations that provide aid to communities in the wake of disasters. One example is the American Red Cross: Donations from individuals, corporations, and foundations exceeded $830 million in its 2022 fiscal year (July 1, 2021, through June 30, 2022).1 That generosity allowed the organization to respond to 354 large-scale disaster operations — a 4% increase from the previous year — in the United States alone, providing more than 220,000 homes with relief items after events like Hurricane Ida and extreme wildfires in western states.2
Of course, you don’t need to choose to support only national organizations if you want to donate to disaster relief efforts. With today’s easy access to information, it’s easier than ever to be very targeted and local.
“Constant media coverage is now part of the aftermath of any catastrophe, so individual donors are much more aware of what affected communities need,” says Deborah P. Lauer, Senior Wealth Planner at Wells Fargo Advisors. “Donors have the opportunity to be especially effective with their responses.”
Build giving into your long-term investment plan.
The urge to help others is powerful, but it’s worth developing deliberate philanthropic goals so your giving is part of your overall investment plan.
“Many Americans associate giving as part of the holiday tradition or as a last-minute tax strategy,” Lauer says. “But creating an annual giving budget that can be responsive to events like Hurricane Idalia can be more efficient for both the victims’ recovery and your own financial strategy.”
Natural disasters like hurricanes, tornados, and wildfires are often followed by a huge increase in donations to disaster relief organizations. While this outpouring of support is welcome, charities note that it’s important to have the resources they need before disaster strikes.
Lauer supports this as a smart financial strategy as well. “Planned giving helps charitable organizations prepare rather than react,” she notes. “And it also gives you extra time to find charities that support your family’s values and are delivering the best benefit on a dollar-for-dollar basis.”
Know why you donate.
Giving throughout the year instead of focusing on year-end donations can also help your family manage philanthropy as part of your general budget. “Families have increased budget pressures at year-end with holiday travel, entertainment, and spending on presents,” Lauer says. “Giving midyear can help avoid that cash crunch.”
The extra time also allows donors to consider strategies beyond simply writing a check. For instance, donating appreciated securities owned for more than 12 months can be a tax-efficient way to give: You may be able to deduct the full market value of the securities (subject to adjusted gross income limitations) while avoiding capital gains taxes on those assets. But the process takes time, and a late start in December could mean missing out on that year’s income tax deduction. Working with your tax advisor early in the year can help you determine your potential tax benefits.
Organize your giving.
If philanthropy is important to you, consider incorporating it into your overall financial strategy. At the beginning of the year, you may want to set a total for your annual charitable giving based on your budget and the causes you want to support. But leave a little aside for sudden catastrophes so that you know how much you can afford to give regardless of the time of year you make the donations. Your financial advisor can help you work through this process.
“Incorporating charitable giving into your investment plan helps you know how much you can afford to contribute, regardless of when you give it,” Lauer says. “That way, supporting humanitarian causes is not just an emotional decision, but a deliberate one.”
After you identify which organizations will benefit from your donations, do your due diligence to help ensure the group is likely to use your donation effectively and efficiently. The Internal Revenue Service provides a searchable web database, EO Select Check, of organizations designated as qualified charities. Verifying that your chosen group is on the list can help you avoid donating to a fraudulent organization. You can also check a charity’s ratings on review sites such as Charity Navigator and Charity Watch to see how donations are managed and how much is spent on administration versus actual relief efforts.
Understand that giving abroad is complex.
Americans also make significant donations to victims of disasters around the world. But such giving can be complicated: Donations to foreign charities are generally not deductible for U.S. federal income tax purposes. If you do want to support relief efforts abroad, consider donating to a domestic charitable organization that has foreign partners active in disaster relief. Also, check the IRS website for guidelines on making international donations.
Charities and victims alike depend on the kindness of strangers for support after a disaster. If you make contributions throughout the year, your support can be available when needed the most, and you can make your generosity an integrated part of your financial strategy.
¹According to the American Red Cross 2022 Annual Report; https://www.redcross.org/content/dam/redcross/about-us/publications/2022-publications/2022_Annual_Report.pdf, page 31
²According to the American Red Cross Disaster Update: Fiscal Year 2022; https://www.redcross.org/content/dam/redcross/about-us/publications/2022-publications/fy22-disaster-update.pdf, page 3