Year-End Giving: Should You Go Big or Spread It Out?
Year-end charitable giving is often associated with the spirit of doing good during the holiday season. It gives the donor a feeling of satisfaction and, in some cases, a substantial tax write-off. However, one question that often comes regarding charitable donations is: should you spread out your donations throughout the year or give a donation all at once?
This article provides information to help you decide whether to donate the total amount at once or spread your donation throughout the year.
Timing donations
There are many factors to consider when deciding on the timing of your charitable donations. Both options—spreading out donations throughout the year and making a lump sum donation at the year's end—have advantages and disadvantages.
Giving throughout the year
Spreading out your charitable giving over the year may allow for a more consistent and predictable cash flow for the recipient. This method can benefit smaller charities that rely heavily on charitable giving for their day-to-day operations.
For donors, breaking down their annual giving into smaller monthly donations could feel less impactful on their finances, especially if they plan on making significant contributions over time. Furthermore, monthly giving helps instill a habit of consistency and allows donors to adjust their donation amount or the organization they're supporting as their situation changes.
Giving in one lump sum
On the other hand, a one-time, end-of-year donation may also make sense in specific scenarios.
- Year-end bonus— If you receive a large bonus at the end of the year and want to lower your income to offset your tax liability.
- A new project—Another example of making a one-time donation is that it could help kick-start the charity's latest project or giving campaign.
- High-need periods—Year-end can be challenging as charities often see an uptick in demand for their services. Weather and other circumstances frequently contribute to individuals reaching out to charities for help during peak times. This scenario can strain the charity's finances, making year-end donations vital.
Your circumstances, the cause you support, and even the economy may influence your decision.
Tax considerations
Tax-wise, lump-sum donations made at the end of the year may increase the likelihood that the donor can itemize deductions if they've surpassed the standard deduction threshold earlier in the year. However, donors must be aware that charitable donations can't exceed a certain threshold of their adjusted gross income (AGI).
Another example is to "bunch" your charitable donations in a single tax year and contribute to a donor-advised fund (DAF). In the following years, if you anticipate a higher income, you can increase the amount you contribute and continue to support charities over time using the DAF as the giving vehicle.
It's important to note that the IRS considers all donations made during the tax year for deduction purposes, whether in one lump sum or a series of donations over time.
Because tax deductions can be confusing, it's vital to talk with financial and tax professionals to understand how specific rules regarding tax deductions may impact your situation while supporting the causes and charities you care about.
In closing, there isn't a one-size-fits-all answer to spreading your charitable contributions or giving all at once. It largely depends on your circumstances and preferences.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
LPL Tracking #644104
Sources:
https://www.investopedia.com/financial-edge/0411/donations-how-to-maximi...
https://www.fidelitycharitable.org/articles/3-ways-to-offset-taxes-with-...
