We’re entering a busy time of year for charitable donations, perhaps because the winter holiday season brings a sense of gratitude followed by a desire to share our abundance. The availability of tax deductions for charitable giving may also contribute to the concentration of donations near year-end.
According to Giving USA, Americans donated a record $410 billion to charities in 2017. What’s more, over 70% of that giving came from individuals, rather than foundations, corporations, or bequests. However, tax law changes this year mean that for many people there will no longer be an advantage in itemizing deductions; many taxpayers will get better results using a standard deduction. For those households, the tax benefit of charitable donations will be reduced or eliminated.
Will Americans still give? I have always hoped that the main reason most Americans give is that they care about the organizations they are giving to, and that the tax benefits are just an incidental benefit.
If you are wondering whether you should continue making charitable donations even without the tax deductions, I offer two thoughts:
- If your standard deduction under the new tax law is larger than your itemized deductions would have been, then you are still coming out ahead. You can give, and still have more available funds than you would have had under the old tax law.
- There are other strategies that can enable some taxpayers to get tax advantages for charitable donations.
Clustering donations. Some taxpayers may be able to hold back all their 2018 donations until the beginning of 2019; if they then donate a “normal” amount throughout 2019, they will have twice as many donations as usual to report for the 2019 tax year, which may make itemizing worthwhile in 2019. Following this pattern of no contributions one year and double-contributions the next may enable you to donate the same total amounts as normal, and gain tax benefits by alternating years between itemized and standard deductions.
Qualified Charitable Distributions (QCD) from an IRA. If you are at least 70-1/2, you can transfer funds directly from your traditional IRA to a charitable organization; the distribution will not be taxable income to you, AND it can satisfy your required minimum distribution. If your RMD for the year is $5,000, and you are interested in donating $5,000 to a particular organization, then making the contribution through a QCD has the same ultimate impact on your taxes as a tax deduction would have had. IRS Publication 590-B provides details.
Donating as a business expense. If you are self-employed or own a business, you may be able to make charitable contributions as a business expense. For example, farmers can give commodities (e.g. 500 bushels of corn) to a charity. This reduces your business income, and therefore has impact similar to the impact of a tax deduction. Consult with your tax adviser for details.
As always, the best decisions about how to use your money are based on your personal goals and priorities. As you consider your charitable giving decisions, focus on why you want to give when deciding whether and where to make donations. Giving to organizations you know (often local organizations) can ensure that your gifts are used well; when considering larger national charities, check them out with organizations that evaluate charities, such as www.give.org, www.charitywatch.org, www.charitynavigator.org, or www.givewell.org.
Most of us have dozens of ways we “save money:”
- We “save” by using coupons and shopping sales.
- We “save” by saying NO to ourselves and others when temptation arises.
- We “save” by cooking at home instead of eating out.
Are you wondering why I put the word “save” in quotation marks in all those examples? Here’s why: even if we did all those things every single week, there is no certainty that our savings account balance will increase.
All those steps are ways we reduce costs, but do they automatically lead to deposits to savings accounts? No. Take me, for example: I have never once taken the money I did not spend at a restaurant or grocery store and deposited it into a savings account as a direct result of the decision not to spend. Instead, the money I “saved” would usually just get spent on something else!
A decision not to spend is a key step in saving. But by itself, that decision is not enough; it only turns into saving when we actually move the money into a savings account (or to a dedicated savings location such as a piggy bank). When I come to a coffee shop or an ice cream store and I go on by without stopping because I want to save that money, I should probably just stop right there and transfer money from one account to another. Or I could carry a “saving” envelope in my purse and move cash into the envelope every time I resist temptation. That would be the way to make sure the actual saving occurred.
Saving is a two-step process. It involves deciding not to spend and putting money in a designated location. Either step can come first. I can decide not to buy something and then save the money; OR I can put the money away first and then (out of necessity) spend less than I otherwise would have spent.
Note: many of us do better if we put the money in savings first!.When there’s no money in your billfold or your account, it’s easier to resist temptation to spend!
Do you sometimes wonder why you aren’t getting ahead, despite your efforts? It may be because you’re skipping one of the steps. How can you turn your cost-cutting into true savings progress?
I dug out my winter clothes this week. I had to open and move several boxes and containers to find the tubs containing my clothes. I was amused when I thought about how much time a year I spend opening the wrong tubs, looking for the right tubs. I resolved right then to downsize.
Despite the fact that the average household size has declined to 2.61 persons while the average home has doubled in size since the 1950’s, people still struggle with what to do with all their stuff. In fact, one out of every 11 people rent storage space during any given year.
There are many reasons to down-size: moving to a smaller place; passing treasures on to others; generating a little extra income by selling items; or eliminating the cost of storing stuff. For me the 2 motivating factors are eliminating the time and cost to care for and store stuff; and to not leave my kids, the burden of dealing with all my stuff when it is time to settle my estate.
If you are looking for tips on organizing and downsizing your home, check out Downsizing Your Home: A Guide for Older Adults from Kentucky University Extension.
October is always a fun time of year. I grew up near the Spoon River Scenic Drive in western Illinois, where every fall included two fun weekends of visitors checking out the crafts, antiques, and food.
You can experience leaf peeping, apple orchard visits and cider donuts, fall art shows and festivals. Living now near Wisconsin, I now also enjoy cheese festivals with music!
Bike rides as well as walks can benefit from the good fall weather. Don’t forget the pumpkin patch and corn maze fun. Capitalize on the farmer’s market – local produce, jellies and jams.
Many of these opportunities are near where you live. Take advantage of your local resources and opportunities. You don’t have to travel hours away to visit theatre, museums, art exhibits and great food. These opportunites are in your backyard – experience the offerings and make family memories.
I just completed a pilot series online for a financial class called Small Change. How many of you pick up coins off the ground or from pockets in the laundry? With each dime or quarter, money starts to add up! Starting with small change can pay off a small debt or help you save for one of your goals like a vacation, a down payment for a vehicle or your child’s higher education.
These small coins can make a big difference. Twelve years ago my friends found out their daughter-in-law was expecting twins and during the six months, they saved their coins from purchases and emptied out their pockets: they were able to buy a piece of furniture – a dresser -for the grandsons.
I have participated in a group where part of our fund raising for scholarships is to save the coins. We each have a nifty little box with a lid to transport our coins. During a month’s time, the treasurer collects between $50-$60 dollars. When an I-Pass, (prepaid electronic toll collection system) was needed because of daily travel on the tollway, my coin collection started to flourish. When I moved to Iowa, I am in a community that has parking meters where I now use many a quarter.
What are you doing with your small change?
I read an article last week in the popular press (based on a legitimate research brief) that offered encouragement for those who are worried they haven’t saved enough for retirement. The research project demonstrated that if you delay retirement 3-6 months, it provides the same benefit as if you had saved an additional 1% of your income for 30 years.
If you are: a) wishing you could save more, but really can’t; or b) wishing you could go back in time and start saving more, sooner, this research is encouraging because it says you can partly make up for a savings shortfall by delaying your retirement date. To be clear, delaying a few months doesn’t “magically” double the balance in your 401(k) or IRA account. The delay affects your retirement income security in several ways:
- It means additional months of contributions to your retirement account.
- It gives your money more time to grow.
- It reduces the number of months you’ll need to support yourself in retirement.
- Delaying Social Security benefits beyond full retirement age results in a larger monthly benefit. (under current law).
The fourth benefit accounts for most of the mathematical advantage of delaying retirement, but all four factors contribute. The first two actually DO increase the size of your nest egg; the third one means your money doesn’t need to be stretched so thin.
Wherever you are in your pre-retirement saving journey, it always pays to save more starting now if you can. But even a modest delay of retirement can provide a retirement lifestyle as if you’d saved more all along.
Many students recently marked a big milestone by graduating from school. Looking back, what words of wisdom regarding personal finance would you like to have received when you left high school?
Personal finance does not have to be boring! The National Endowment Financial Education – www.nefe.org has a couple resources to help your graduate be an independent young adult.
On Your Own –is a blog with a range from credit score calculated, making better money decisions, and the pros and cons of college? This is a trustworthy site.
Another option is Smart About Money (SAM) is an in-depth, guided learning experience. There are five sections with valuable tools, worksheets, calculators and quizzes. Each course is about 45 minutes.
Cash Course targets college students. Some colleges and universities offer it especially for their students, but any student can enroll independently. It’s free, with no strings attached, but you do need to create a user account.
Forty Money Management Tips Every College Student Should Know – this Cash Course resource helps young people learn how to take control of their money instead of letting their money control them.
My brother recently attended a medical conference in which a lawyer spoke about the physician’s responsibility when providing care for someone who is unable to make medical decisions for themselves. If a patient has not completed a Power of Attorney for Health Care, the doctor is required to listen and weigh the concerns of all family members when caring for the patient. Speaking from our personal experience, my brother and I did not struggle while communicating with caregivers and making decisions for dad; we knew what dad’s wishes were and the two of us shared dad’s values and faith. Additionally, as Dad’s POA for Health Care, it made it easier for me to say “no” when a family member made a request that was clearly not in line with his wishes…even when there was support from a fourth sibling for that request.
In comparison, the family of my brother’s wife is learning (the hard way) what happens when someone has not designated a Power of Attorney for Health Care. Their mother had a major medical emergency that has left her unable to communicate her wishes. Early on in her health emergency, there were 8 – 13 people in her room at all times and an additional 3 – 5 being consulted by phone; basically, they were making decisions by a majority vote while under stress and in an emotional state. Can you imagine being the physician in this example…having to listen and weigh the concerns of all family members?
The Finances of Caregiving is a series of five 2-hour workshops to expand your understanding of options and to help families plan together for providing care for a loved one. Understanding your choices is only possible when you know your current situation. This series guides you through finding and collecting that information, and includes the importance of identifying a Power of Attorney for both Health Care and Financial matters. For more information on this program, visit https://www.extension.iastate.edu/humansciences/finances-caregiving
Having a debt – perhaps a mortgage or a car payment – may feel as if you have a ball and chain around you for the duration of the loan. Is there a way to lessen the load?
One option is to simply round up your payments. Suppose your current car payment is $360 per month. If you round up and make monthly payments of $400, that is like making one extra payment during the year on your car, and the extra money goes toward the principal on the loan. You’ll reduce your interest costs, and you will also pay off the loan faster.
Here’s a mortgage example: if your mortgage payment is $900, but you pay $1,000/month, the extra $100 goes toward the loan principal. That’s an extra $1200/year! If $1,000 is too much for your spending plan, try $950, which is an extra $600 per year. Over several years, either strategy will save thousands in interest and get your mortgage paid off years early. Read the fine print on your contract. Make sure your lender accepts larger payments. Need to know so it helps your cause.
You can use the same strategy with any credit card bills where you are carrying a balance, and on any other loans, as well.
Every time you round up you’re getting closer to debt freedom without feeling much of a pinch. Once you start this habit, it will be hard to break. Fortunately, it’s a very helpful habit!
When a family saves for an agreed-upon goal, there is more buy-in to succeed.
Are you dreaming of a vacation? You are not alone. Nearly half of people –no matter their age, income, or gender – say vacation is one of their savings priorities. How are they working toward their vacation fund goal? Only 40% indicate they are on track to meet their vacation savings goal. Sixty percent of the savers do not feel on track but are working on the vacation savings goal.
If you and your family have a goal (a vacation or some other goal), you need a plan to succeed. If the whole family is helping, it will be a lot easier to follow the plan. Here are some examples of common-sense ways people have planned and saved for a specific goal:
- My brother-in-law took a job in Geneva, Switzerland. I immediately decided I wanted to visit. That meant considering how I would pay for the trip, airfare, Eurail pass and spending money? At the time, I received reimbursement for miles driven on my job. My gasoline was already paid for, so if I banked the payment checks in an account, I would soon have enough funds for a Europe vacation.
- Several years ago, a friend found out her daughter-in-law was expecting twins. Upon getting that news, she and her husband saved their coins for six months and were able to purchase a dresser for their new grandsons. They had a deadline – the birth of the grandsons, and the coins added up over time to purchase the piece of furniture. This week, those grandsons will be thirteen.
America Saves can offer more ideas.