Charitable giving offers many benefits, but it’s important to make your plans for giving back based on facts. We demystify 6 common myths about giving.
Charitable giving — supporting the causes nearest and dearest to your heart — is incredibly rewarding. After all, how better to show your gratitude for God’s abundant gifts than to generously support organizations devoted to helping others or accomplishing worthy goals?
But there are a number of commonly held myths about charitable giving that might surprise you. Here are the facts — and the benefits that charitable giving can deliver spiritually and financially.
Myth #1: You can’t get a tax break until you make a gift
Conventional wisdom says that you enjoy the tax benefits of charitable giving only after you make a gift to a nonprofit. Typically, those who qualify are able to deduct the donation in the calendar year that they make their gift. However, if you’re unsure how you want the nonprofit to use your money or the projects or initiatives you wish to support, a donor-advised fund or endowment fund may allow you to qualify for an immediate tax deduction.
A donor-advised fund allows you to make an upfront contribution and then make recommendations about how grants are disbursed. An endowment fund is also established with an upfront investment. The funds are invested and the beneficiary you choose receives the fund’s proceeds annually. These options allow your gift to grow tax-free and benefit organizations you choose, in alignment with your values, in perpetuity. You can even split your gift among several organizations or initiatives, supporting a variety of causes.
Myth #2: You can always deduct the entire amount of your charitable contribution
While charitable contributions can provide important tax benefits to people who itemize their federal income taxes, the deductibility of contributions has limitations. According to the Internal Revenue Service, you may deduct the cash or fair-market value of your contribution up to 50 percent of your adjusted gross income (AGI) computed without net operating loss carrybacks. Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations are limited to 30 percent of AGI, again computed without net operating loss carrybacks.
Myth #3: You should only give to nonprofits that have low overhead costs
“Look for low overhead” is a common refrain repeated to donors. However, nonprofits vary greatly in their mission, purpose, operating realities, and other factors. While one service-based nonprofit may be able to keep overhead very low, another nonprofit with inventory or high operating expenses may be just as effective.
Instead, look for specifics about how the charity is run and consider your own experience with it. The National Council of Nonprofits gives good guidance in evaluating overhead costs and determining the best causes to support.
Myth #4: Once you give your gift, it’s gone
Indeed, if you simply write a check to a charitable organization, it will likely be deposited and spent, gone forever. Various vehicles can let your gift live on long after you’ve made it. Funds like donor-advised and endowment funds actually invest your gift so it grows tax-free. They extend your ability to give over long periods of time. Various trusts can do the same. Once you’ve chosen the causes you wish to support, meet with their development officers to examine the giving options they offer and choose the options that best fit your goals and financial circumstances.
Myth #5: Charities can spend your donations however they choose
While unrestricted donations can be used as the charity best sees fit, there are a number of ways you can retain control of how your donations are used. People who have a strong Catholic faith and values often want to ensure that their money is used in accordance with their beliefs.
One way to ensure that the donation is used in alignment with your values is to simply specify how you wish the funds to be used at the time you make your gift. A donor-advised fund allows you to make grant recommendations to support specific organizations or initiatives.
Myth #6: Only wealthy people have charitable giving plans
Many people who want their legacy of giving to live on after them or who want to share their values with family members for generations to come have an estate plan or charitable giving plan. If you have a charity you wish to support for the long-term, establishing a donor-advised fund or endowment fund can provide ongoing financial support.
Understanding the facts about charitable giving can help you make the right decisions for you and your family. If you would like more information about working with the Catholic Community Foundation to plan for your charitable giving future, contact us.