Donating to charity is a way to contribute to causes that are bigger than ourselves. For many people, the act of giving is deeply personal. We are emotionally invested in the causes we give to and in the charities we entrust with our dollars to carry out life-changing work. Every day, Americans give more than $1 billion to charity. And the ways in which they’re doing so are more diverse than ever.
Whether you’re just dipping your toes into the charitable giving world or you’re looking for tax-advantaged ways to maximize your gifts, here are eight smart ways to donate to charity.
1. Donate your time or skills.
If you’re looking for an affordable and impactful way to give back to the causes you care about, consider donating your time.
Depending on the organization, you may also be able to “donate” your skills. Charities often have limited funding for administrative tasks and overhead costs, such as photographing their events or designing and maintaining their website or social media platforms. If this speaks to you, you may consider reaching out to our charity and provide us with a unique service at no cost.
2. Donate cash.
Donors often consider donating cash to be the quickest, most convenient way to give. Many charities allow you to give online via a credit card in seconds.
Although it may be convenient for you, keep in mind that your charity will likely have to pay a credit card processing fee of 2.2% to 7.5% per transaction. That fee is deducted directly from your donation. If you want to maximize your charitable donation, there are even better ways to give — like donating stock.
3. Donate stocks.
If you’re looking for a tax-savvy way to donate to charity, consider donating shares of stock. There are many benefits to donating stock, both for you and for your favorite charity. In particular, donating stock gives you the opportunity to save on both capital gains taxes and income taxes. And due to these tax savings, your donation can be larger, making your dollar go further than if you were to sell the stock and donate cash.
To donate stock, you’ll fill out a stock transfer form from your brokerage, or the financial institution that manages your stock assets. In the form, you’ll provide information about the stock you want to donate and which charity you want to donate to.
Another option is to use FreeWill’s free online stock donation platform, which lets you complete your stock donation online to participating charities in less than 10 minutes.
4. Participate in your employee gift-matching program.
Some employers offer gift-matching programs for qualified charities, meaning they’ll match the amount of your donation up to a certain amount. This can effectively double your contribution and make more of an impact on the causes that matter to you.
Gift-matching programs are more common at large employers, and the maximum donation amount they’re willing to match will vary. You can search Charity Navigator’s database to see if your employer offers gift matching, or check with your HR department.
5. Donate cryptocurrency.
If you own any cryptocurrency, you may be surprised to learn that you can donate these assets to charity. So why make a crypto donation when you could donate cash?
When you sell cryptocurrency for a profit, your earnings are subject to capital gains taxes (just like stocks). This means that a crypto donation has the same tax benefits as a stock donation: you avoid capital gains taxes and your overall taxes may be reduced, all while maximizing your impact on charity.
Not all charities support crypto donations, so you should check with your preferred nonprofit to see if they accept them. For those that do, they may have limitations on which coins they accept. For example, they may only accept larger mainstream coins, like Bitcoin and Ethereum. Nonprofits that allow crypto donations will generally have a platform on their website where you can complete your transfer.
6. Create a Donor-Advised Fund (DAF).
A Donor-Advised Fund, or DAF, is an investment account where all the assets you invest go to charity. Anything you contribute to the fund — including cash, stocks, and cryptocurrency — is managed and invested by a sponsoring organization. Your contributions will grow tax-free, and over time you can recommend grants from your fund to qualifying charities.
When you contribute to a DAF, you can qualify for an income tax deduction for the amount you contribute in that tax year. DAFs also provide you with flexibility, letting you play a role in choosing when and to which organizations you’d like to donate.
Keep in mind that donations to a DAF are irrevocable. This means that once you contribute assets, you aren’t able to withdraw them and use them for a different purpose. They must be donated to a qualifying charity.
7. Make Qualified Charitable Distributions from your retirement account.
People over 70.5 can donate funds from their IRA accounts directly to nonprofits. This type of gift is called a Qualified Charitable Distribution, or QCD.
When you reach 72 years of age, you’re required to start making withdrawals from your pre-tax retirement accounts, including your 401(k)s and IRAs. The minimum dollar amount you must withdraw each year is called your Required Minimum Distribution (RMD).
The amount of your RMD depends on several factors, including your age, life expectancy, and whether you’re married. The withdrawal percentage can be anywhere from 4% to 53% of your account balance.
Any time you withdraw money from your pre-tax retirement account, it’s considered taxable income and will be taxed according to your income bracket. This includes money you have to withdraw as part of your RMD. That’s where QCDs come in.
Making a donation as a QCD counts towards “withdrawing” your RMD for the year. And the amount of your donation isn’t counted toward your taxable income, which may help you save on income tax.
To make a QCD, you’ll have to fill out an IRA Charitable Distribution Form and submit it to your IRA custodian (the institution that manages your account). You’ll need your account information and the nonprofit’s EIN for the form.
8. Leave a legacy gift to charity in your will.
There are ways you can donate to charity that extend beyond your lifetime. One of these ways is to name a nonprofit organization as a beneficiary in your last will and testament. These bequests are often called planned gifts or legacy gifts.
You can donate to charity in your will in two ways:
- Name the charity as the primary beneficiary for a specific gift, like a certain amount of money or stock.
- Allocate a percentage of your total estate to a charity. Many people choose to leave 10% of their estate to a charitable cause when they make their wills on FreeWill.
A big benefit of leaving a legacy gift to charity in your will is that it costs you nothing now. Your gift will make a difference for a cause you care about without having any financial impact on you during your lifetime.
You can name a charity in your will in three simple steps. If you don’t have a will, you can make one for free in just 20 minutes using FreeWill’s online will-maker.
9. Name a charity as the beneficiary of your non-probate assets.
There are certain assets, like your 401(k) account and life insurance policy, that pass on to your beneficiaries outside of your last will and testament. You have to fill out separate beneficiary designation forms to name beneficiaries for these non-probate assets.
In these forms, you have the option to name a charity as your beneficiary. This is another fantastic way to give back to the causes that matter to you in a way that doesn’t cost you anything during your lifetime.
You can learn more about how to make beneficiary designations. You can also use FreeWill’s beneficiary designation tool to track and plan your designations in one place. With FreeWill, you can print a single page that lists your beneficiary information and store it in a safe place with your will and other important documents.
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