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As a value conscious consumer, you’re strategic about how you spend your hard-earned dollars. You extensively research big ticket products before clicking 'Buy', you watch for sales, and ensure the timing of the purchase fits into your budget. So shouldn't you apply the same philosophy to your charitable giving? Of course you should! When you're strategic about donating, your dollar works harder for causes that are important to you.
Make charitable giving part of your financial plan
Many large businesses factor charitable donations into their business strategies and budgets. They often designate a percentage of their revenue that will be given to non-profit organizations that align with company values. For example, One Percent for the Planet is an international organization whose members contribute at least 1% of their annual revenue to environmental causes. By joining the organization, companies have made a quantifiable commitment to the cause.
This same principle can be applied to your personal finances. If you earn $70,000/year, 1% of your income would be $700, which might be more or less than you’re comfortable contributing. However, setting aside a flat or percentage “charity budget” allows you to be more strategic about giving.
Sometimes we have the best intentions to give back, but we don’t quite get around to doing it. If we know our charity budget, we can put giving on autopilot by setting up recurring donations to our non-profits of choice. A charity budget also helps with tax planning and gives you a polite out when required: “Sorry, I’ve already spent/assigned my charity budget for this month!”
Consider causes that align with your values
Clearly define the objectives and causes you want to support with your donation. Consider focusing on specific issues or communities that resonate with you. By narrowing down your focus, you can make a more targeted and meaningful impact. For example, do you want to donate to international or local causes? Have you been personally affected by a condition a charity is looking to resolve? Have you seen the firsthand positive impact of a certain charity? These are among the questions that can help you decide where to direct your donation.
Research effective charities
Look for charities that have a proven track record of making a difference in their respective areas of focus. We’d like to think if an organization is a non-profit, it keeps a lean budget with service and ROI top of mind. However, that is unfortunately not always the case. Ask staff and volunteers their biggest milestones of the past year, their goals of the upcoming year, and how they plan to use your donation.
For third-party guidance in your charity vetting process, check out Charity Intelligence. They use data analytics to look behind the gloss at a charity’s results, costs and impact. You can find their report on Canada’s 2023 Top 100 Rated Charities here. Edmonton area charities who made the Top 100 list include Boys & Girls Clubs Big Brothers Big Sisters of Edmonton and Edmonton’s Food Bank.
Claim your tax credit
There are many reasons to donate to charity: that warm fuzzy feeling, a sense of community, and in the case of 23% of Canadians, a tax credit. When you donate to a registered charity, you can claim a tax credit, which is a reduction in the taxes you owe to the federal and provincial governments. A percentage of your donation comes back to you in the form of a tax refund, or a reduction on your taxes owing.
Effective January 1, 2023, Albertans can receive a tax-credit of 60% on their first $200 of charitable donations. Combine that with the 15% federal tax credit for donations under $200, and Albertans will receive a 75% tax credit on the first $200 of eligible donations, up from a combined 25% tax credit last year, when Alberta’s rate was 10%. Donations above $200 receive a 29% federal tax credit and a 21% provincial tax credit, for a combined credit of 50%.
You also can donate publicly traded securities, such as stocks and mutual funds to qualified charities. Normally, if your investments have risen in value, you would be subject to capital gains tax when you sell them. However, if you donate the assets to a charity, neither you nor the charity pay capital gains tax. As a bonus, your tax receipt for donations is at the full market value of the assets at the time you donate them.
Couples can combine donations in a single tax return, potentially maximizing access to higher tax credits. Donations not claimed in the year they’re made can be accumulated and carried forward up to five years. You can calculate your charitable tax credit here.
Keep in mind, you can only claim donation to registered charities. Find a list of charities and other qualified donees here. Be sure to speak to a tax planning professional to determine how to get the best charitable tax return for your situation.
Consider non-financial contributions
As much as charities need financial donations, they also need material resources and dedicated volunteers. Volunteering your time and skills or providing pro bono services can have a direct and meaningful impact on the organization and the communities they serve. Research has shown that volunteering offers significant health benefits, especially for older adults. It’s a great way to meet new people and feel connected to your community. Donating goods can also be a valuable way to support charities (and de-clutter your home). However, be sure to ask the charity what they need because a donation of unrequested goods can be a burden when staff must sort, store, or dispose of the products.
Check out Volunteer Connector to find volunteer opportunities near you.
Summary
Donating to charities and volunteering are noble acts that are not entirely selfless, and that’s great, because why not spread the joy. Whether it’s a sizeable tax credit, a sense of purpose and community, or a general, warm fuzzy feeling, there’s something to be gained from giving. When we are strategic about our giving, researching the cause, and co-ordinating the donation with our other personal financial planning efforts, we stand to maximize our impact, on both our personal lives and the causes we care most about.
Contact your team and ABCU to discuss how to incorporate charitable giving into your financial plan: 1-888-929-7511.
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