Few of us are against philanthropy, but giving to charity can seem like a pretty big financial burden when you’re already juggling so many commitments. Before you hold off on giving, know that a donation can benefit you too, and not just by giving you the warm fuzzies.
Those benefits can include:
- legacy building;
- tax savings;
- a meaningful focus during retirement;
- passing values to a younger generation
- supporting causes.
You may want to consider charitable giving when coming into a large windfall, or simply as part of your estate or tax planning strategy.
Here are the best times to consider charitable giving.
1. TAX PLANNING
The majority of charitable giving occurs in the final few months of each year to capture tax savings.
Changes to Canada’s tax system have made it increasingly attractive to use charitable donations to offset taxes. Used correctly, charitable tax credits can offset up to 75% of your net income, and up to 100% of net income upon death.
According to Imagine Canada, a group that advocates for the charitable sector, income tax credits rank fifth on the list of top reasons for philanthropy, behind compassion for a cause, having been personally affected by something a charity supports and fulfilling religious beliefs.
2. ESTATE PLANNING
Giving to charity as part of your estate plan can help you build your legacy, share your values with your children and grandchildren, and also save taxes.
A typical approach to estate planning pays CRA first, then family and friends. If there’s anything left, charity comes into play.
If you already give, consider reallocating a share of that cash to a life insurance policy that names your chosen charity as beneficiary. This shifts existing giving toward a tool that will lower your estate tax bill and produce a significant windfall.
If receive an inheritance and are already enjoy financial security, this can be another opportunity for charitable giving.
Sometimes a charitable gift is a one-time offering, but many people wishing to honour a family member’s memory instead choose a structured giving option such as a donor-advised fund or, for more significant amounts, a foundation.
4. SELLING A BUSINESS
The sale of a business is exciting, but it can also produce a massive tax bill. And another opportunity to give to a cause you support.
The same applies if a company in which you own stocks is sold, and generates significant income for shareholders. “By knowing where the taxes are going to land, you can decide whether you want it to be channelled through taxes or through charity,” says Malcolm Burrows, who heads philanthropic advisory services at Scotia Private Client Group.
Consider how to make the donation. A foundation takes months to formalize and must be established well in advance of the deal’s close, while a donor-advised fund can be established on short notice.
Once you’ve decided that you want to give, the next step is decided what organizations you want to support. This is a deeply personal decision that requires careful consideration. Beyond your own community network, the site Place2Give allows you to review different charities.