Picking, Saving, and Bunching: Start Planning Your Charitable Giving Now

The end of the year isn’t the only time to make charitable gifts. Some might argue it’s the worst time, if only because everyone else does it.

Still, whether because of bonuses, holiday cheer, or the intense marketing efforts of charities after Thanksgiving, a preponderance of folks cluster their giving as the year winds down.

Let’s embrace that. And since we’re embracing it, let’s make a charitable plan to optimize these next few months so that we can make strong end-of-year gifts.

To make that giving effective, we need to overcome the three bugaboos that plague even experienced givers who put off giving to the end of December:

-To whom should I give
-How much can I give, and
-Does this help me tax-wise?

Let’s tackle each of these. I’ll bet you’ll discover that you can do a lot more than you thought in a much more strategic way than you might have considered.

To Whom Should I Give?

If our goal is to give more away, then you have two options. On the one hand, simply increase your giving to the group or groups you support now. If that’s your intention, go ahead and skip ahead to the next section.

On the other hand, with more to give, you might decide to contribute to a few more groups. But who is worthy of your giving?

First, look inside. What values do you hold most dear? What social problems do you most want to see solved? Identifying these values will tell you a lot about the types of groups to support.

Second, ask around. Armed with the knowledge of the value and issues you wish to support, ask your friends, family, or others who might be knowledgeable. Be direct. “I’m hoping to engage more with non-profits doing X. Do you have any recommendations of groups working successfully in that area?”

Make a list of what you find, do a little research, and consider a couple groups to which you might want to make some experimental gifts.

How Much Can I Give?

If you only give from cash at the end of the year, you will give less than you would if you built up charitable capital throughout the year. The net effect, then, is that you have less impact as a charitable giver.

The inverse is also true. If you build up a charitable fund throughout the year, strategically setting aside a bit of money every month, you’ll end up with more to give at year’s end, and your impact goes up.

Invest in your giving. Whether with a donor-advised fund, a separate savings account, or an old coffee tin, sash away a bit of money every week or every month. Automate it and then enjoy the surprise at the end of the year when you have more in your charitable account than you do in your bank account.

I hear a Rational Economist in the back row explaining how money is fungible and there is nothing to stop someone from using that “charitable” money for something else. True. Yet the human mind does funny things. If we say “this is for charity,” then we tend to spend it that way. That’s why it is so important to make a goal of how much you want to give away and then set that money aside.

As with so many things, the best time to do this is in the past, but the next best time is today. Do this through the end of the year and you will still give away more than you otherwise would. Here’s a more detailed account of how to put this plan into action.

Does This Help Me Tax-Wise?

You wouldn’t say no to free money, would you? (Not to be snide, but if you’re under 40, charitable, and haven’t joined Novus Society yet, you’re doing just that…but I digress).

Taxes shouldn’t motivate your giving, and the financial ROI on charitable tax breaks is not the road to riches. Yet considering the tax piece plays into being a strategic giver, because if you do it right, you can find a way to give away more than you realized.

Charitably-minded people on the cusp of taking the standard deduction or itemizing their taxes each year need to know about the bunching strategy (or clumping, as it is occasionally called).

The gist is this: instead of making the same amount of charitable contributions in years one and two, you bunch all your giving into year one in such a way as to itemize one year and take the standard deduction the next. In doing so, you continue to support the charities you care for at a consistent rate while improving your own tax situation.

My colleague and our resident tax expert Jeff Zysik wrote a detailed, example-filled piece on the bunching strategy recently. Read it. Take a look at the examples and see if they are a match to your situation. Run your own numbers and chat with your tax advisor. It may be that a bunching strategy can benefit you and your giving.

A certain segment of pundits think the bunching strategy hurts charities because it makes their receipts more erratic. If that is a concern, then using a donor-advised fund (DAF) as part of your bunching strategy solves that problem.

Since the DAF account acts like a charitable savings account, you can separate the tax questions from the timing of your giving. That means you don’t have to double-up your giving to Charity A in one year and skip giving the next. Instead, you can recommend gifts from your fund as you normally would, knowing the tax questions have already been handled.

Shoot For Impact

People give for many reasons, but above all they want to see positive change in the world. What is the change you want to see? If you’re truly committed to it, these steps will allow you to pull the levers of change in a stronger way.