Charitable giving is a top priority for many Americans, especially as the year comes to end. As Christians, giving can put our faith into action and help align our hearts with eternity. A cornerstone verse for many Christians, John 3:16, says, "God so loved... that He gave…"

Love often includes some form of giving, and giving is good. But smart giving is even better, especially when it comes to your finances. How can you make the most of your family's charitable contributions this holiday season?

Why Give to Charities at the Holidays

Charitable giving ramps up in the fourth quarter of the year. In fact, 31% of all charitable giving takes place in December, and 12% happens in the last three days of the year. In a normal year, that is. What about in a year like 2020?

Despite its hardships, 2020 shattered end-of-year giving records for all previous years, becoming the most generous year in human history according to research from Giving USA. Although 2021 has held its share of challenges, we may be on pace to see another record-breaking surge of generosity this holiday season.

Why do Americans Typically Give More During the Holidays?

People feel more generous around the holidays. In 2020, TopCashback.com polled 1,363 Americans over age 18 about their reasons for holiday charity. The results were overwhelming: 99% said charitable giving made them feel good, and 84% claimed they felt more generous during the holidays.

These days, gift-giving is seen as an important part of Christmas. However, many believe the concept of Christmas giving goes back to the Magi in Mathew chapter 2. The story of the Three Gifts provides us with a solid theological foundation for giving, as a celebration of Jesus’ birth.

 Modern gift-giving as a Christmas tradition only started in the 19th century, though. Charles Dickens penned A Christmas Carol, the now-beloved novel about Scrooge, Tiny Tim, and the importance of giving. Around the same time, American marketers started to advertise to parents and children using a red-suited Santa Claus. This kickstarted Christmas as we know it, with reindeer, Santa, and the gift of giving.

Of course, making a charitable donation to registered charities also provides tax benefits. This charitable deduction is almost as old as the income tax itself, dating back about 100 years. Written into law during the deduction to top philanthropists like Andrew Carnegie and John D. Rockefeller.

 Over time, as taxes grew, so did the corresponding deductions. Today, about 13.7% of American taxpayers itemize their dedication, and almost all who itemize likely give something to charity. Prior to 2017 when Congress raised the standard deduction rate, nearly half of American taxpayers itemized.

Tax deductionscan provide extra motivation for upper-income Americans, but do they actually encourage giving? The answer is — well, not easy to come by. Most likely, they help some families decide to give a little more, but they seem to have little measurable impact on most people's charitable impulses.

The fact is, most Americans give to charities simply because they want to help others. But are the holidays really the best time to give to charity?

Are the Holidays Really the Best Time to Give to Charity?

Just because you feel more charitable during the Christmas holidays — and don't want to get lumped in with the miserly Ebenezer Scrooge — doesn't mean the fourth quarter is always the best time to give.

The best time to give is often after you’ve identified the charity you wish to give to, determined how much you want to give, and in some cases maximized it through a matching donation.  If that happens to be at the end of the year, then writing that check in December may be a generous and responsible decision.

If you haven't done your due diligence yet, , it's not wrong, stingy, or a poor tax decision to wait. In fact, you could argue that it's bad stewardship to send your money to an organization you haven't properly vetted just because the season of generosity has come around again.

How to Choose a Charity

Picking a non-profit to support isn't always simple or straightforward. The traditional yardstick for determining a "good charity" from a "bad" one has been singular: How much money goes to programs vs how much goes to overhead?

This single metric has served both donors and charities poorly. It's time to think about giving differently. Here are six do's and don'ts for making the most out of your philanthropic dollars:

1. Do choose a charity whose mission aligns with your mission. Do you want to feed hungry kids? Find an organization that does that. Are you interested in preserving the arts for everyone to enjoy? Direct some dollars to a museum, theatre, or symphony. Don't get caught up in following giving trends; follow the mission or issue that God is placing on your heart.

2. Do scout out organizations with experienced leadership at the board and executive levels. This one might be a little trickier to identify, but leadership often determines an organization's effectiveness. Many nonprofits have good-hearted people at the helm. Make sure those good hearts are attached to wise heads with years of leadership experience before you invest in their mission.

3. Do measure progress, but don't expect perfection. Find out how an organization determines if it has been successful in carrying out its mission. For example, does a medical mission set a number of people it plans to serve each year, or does it focus on serving a few patients who need time-consuming and expensive procedures? If the organization didn't meet its goal, don't write them off. Ask why, and learn more about how that charity works.

4. Don't be impressed by national brand recognition or slick marketing campaigns. A well-known organization is well known because it employs a talented marketing team. It's not necessarily a more effective, more generous, or better-managed charity than the small rescue mission in your hometown. Ask as many hard questions about popular charities as you ask about unfamiliar ones.

5. Don't solely rely on lists of top (or bottom) charities that you find on the internet. Publications create these lists to drive internet traffic to their sites and thus sell their advertising space for more money. The lists may offer valuable insight, but they may not, depending on who conducted the research and what metrics they used. Always check out charities for yourself.

6. Don't forget about your home church, your alma mater, and your local charities. These organizations may lack a sophisticated fundraising staff or a slick marketing campaign, but they probably rely on you to help them carry out their mission. These are the players on your hometown team. Think hard before directing your traditional gifts elsewhere.

Websites like Charity Navigator or Guidestar can help you stay informed before giving to a charity.

Tax Deductions on End-of-year Giving

In 2021, the charity deduction for taxpayers who don't itemize allows married individuals filing separately to claim up to $300 in tax deductions and $600 for taxpayers who are married filing jointly.

Taxpayers who itemize their deductions can claim 100% of their adjusted gross income as charitable contributions depending on the type of gift and the charity. Normally, this percentage falls between 20% and 60%. If you are planning to make a large charitable contribution, you may be able to maximize your tax benefits by giving in 2021.

Cash Gifts

Taxpayers can claim up to 100% of their income for cash gifts using 2021 Form 1040 or Form 1040-SR. The 100% deduction is not automatic, and taxpayers must choose to take the new limit. Check with your tax professional before you make your end-of-the-year cash gifts.

Charity Auctions

Many people enjoy participating in charity auctions, and they can be a great place to find Christmas gifts. Plus, you may get the added benefit of a deduction on the items bought.

The charity auctiontax deduction is not quite as straightforward as a cash gift,.Generally, If you buy an item at a charity auction you can claim a charitable contribution deduction for the amount of the purchase price paid for an item over its fair market value.

For example, charities sometimes publish a catalog showing a good-faith estimate of an item's value. If you were to pay more than that value, you might be able to claim the difference as a charitable contribution. Most of the time, however, items at charity auctions sell for 50% to 75% of their actual retail value. You save money, but you save at the point of sale, not come tax time.

Charity auctions can be a fun way to support your favorite ministry, land the perfect gift, and (maybe) save a little on your income taxes.

Gifts in Kind

Some donors enjoy contributing gifts in kind such as tangible items, hours of service, or stocks and bonds. The tax benefits — and how to claim them — vary significantly according to the type of gift. Check with both the receiving charity and your tax preparer before claiming a gift in kind as a charitable contribution on your taxes.

Christmas Gifts

Generally, Christmas gifts do not qualify for tax deductions unless you make them to a qualifying charity

End-of-year giving can advance an organization's work and further your personal mission. Make sure to vet your charities thoroughly, give generously, and speak with your tax preparer about maximizing your benefits.

Would you like to talk with an experienced wealth manager about how you might make the most of your philanthropic dollars? Contact us...