Getting Started With Your Philanthropy Strategy in 2023
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One of the guiding principles for Money & Mimosas is to make money and make a difference. While I firmly believe in treating myself, I also believe in balancing my life of leisure with philanthropic efforts.
Therefore, in addition to my investing strategy, I also have a philanthropic strategy. Here are some steps to get started with your philanthropic strategy and make a true impact with your wealth.
Don’t start your own non-profit.
I have to start here because so many women feel the urge to start their non-profit, but if your end goal is being helpful to those in need, think again. There are 1.5 million U.S. nonprofits already – in nearly every area. Here’s the issue: each nonprofit spends a chunk on its own administration.
For example, if 20 hunger-fighting nonprofits merged, they could pay one administrative group instead of 20 – and then the rest of the money could be used to fight hunger directly.
Also, those 20 hunger-fighting nonprofits are cannibalizing their efforts. Instead of maximizing their resources and fundraising opportunities, the efforts are diluted and the financial capital is fractured. So, find a nonprofit already helping your cause and give to them.
Focus on a few.
In order to be effective with your giving back efforts, it’s wise to choose one or two causes you care deeply about and then choose organizations that are addressing those causes. Due to fees-per-donation and other admin costs, giving $1000 to one organization goes much further than giving $200 to five different ones.
Be strategic, not just spontaneous.
If you are someone who tends to give spontaneously – as in donating a dollar on-the-spot at the register or giving to a GoFundMe when it flashes across social media - it’s wise to reconsider your approach and be more strategic.
Yes, as the spirit moves you -give. Also, know that this approach will not be as effective as being a strategic philanthropist. Instead of solely being a spontaneous giver, be a philanthropist who chooses 1-2 organizations to support. This way you can save up and donate big dollars that will have a larger impact.
Set a target and achieve it in your sleep.
Decide how much to give annually and set up a separate bank account with automatic transfers each month. According to several of the largest charitable foundations, the average giver donates 3-5% of their adjusted gross income. African-American households at all income levels give 25% more than their same-income peers of other races. And, more African American households donate - nearly two-thirds compared with 55% of all American households (W.K. Kellogg Foundation, 2011). For inspiration, check out Black Philanthropy Month.
And, consult a lady tax expert.
Obviously, any gender will do, but Money & Mimosas is about uplifting wealth-conscious women. The new tax codes make it harder to get tax breaks (unless you’re giving a LOT), but there are still tax benefits for giving back. For example, ask your accountant for tips, such as “bunching”.
What is bunching? It is doubling your charitable giving in tax year one, and not making any charitable donations in tax year two (or vice-versa). By bunching your donations into one of two tax years, it’s possible to reduce tax liability in both years. How? Ok, here is some nerdy tax mumbo jumbo.
In preparing your tax return, you have two choices: claim your itemized deductions or take the standard deduction. As of this writing, the standard deduction for individual filing single is $12,000 (married taxpayers filing jointly is $24,000). If your itemized deductions in a tax year exceed $12,000 (for individual taxpayers) then you will take itemized deductions. Otherwise, you’ll do the standard deduction.
Example One: You are an individual taxpayer and, on average, make charitable donations totaling $5,000 each and every tax year. Your other itemized deductions average $5,000 each year. So, on average, your itemized deductions are $10,000 each tax year. You will take the standard deduction of $12,000 for any average tax year because it is higher, a total of $24,000 over two years. Taking the standard deduction decreases your taxable income by $2,000 in each year. If you are in the 24% tax bracket, you save $480 each tax year by taking the standard deduction rather than itemizing deductions. Over two years, your tax savings is $960.
The bunching strategy is about further reducing your tax liability. Here’s how:
Example Two: Same facts as in Example One, except you move all of your charitable giving to tax year one. Now, your itemized deductions in year one are $15,000. Your year two itemized deductions are $5,000. So? For year one, you claim $15,000 of itemized deductions. For year two, you claim the $12,000 standard deduction since your itemized deductions are only $5,000. By bunching your giving, your total deductions over the two years is $27,000. With bunching, you reduce your tax liability by $3,000 (compared to not bunching) giving you a tax savings of $720. Over two years, your tax savings is $1,440.
That is $1,440 in tax savings versus the $960 in example one.
Not huge numbers, but you can imagine as your giving grows so will your savings.
One concern you may have is if you give in year one and not year two, will the charities you love suffer. This can be alleviated by bunching with a donor-advised fund account so that your charities still receive their funding on an annual basis.
Disclaimer: the content presented in this article is for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.
