Donating to a nonprofit organization can bring great rewards, not only to the charity, but also for the person doing the giving. But, with all the worthwhile causes out there, how do people know which ones to choose, while also considering their financial situations?
Daniel Harrison, a financial advisor with Ameriprise Financial in Grosse Pointe, advises people to consult with their financial advisor or tax advisor to evaluate all the options when considering different donation strategies.
"Like anything else, having a plan in place can help avoid errors and improve or increase chances that their intended gift will be used the way they want it to," he says. "There are a lot of variables in our increasingly complex world, especially with financial markets, and they should work with a professional to develop a plan specific to their situation."
When working with clients who wish to donate assets, Dan encourages them to connect with individual charities and meet some of the leaders or heads of the organizations. "This can give people a better idea of the impact their donations may have, such as how much of their donation is actually going to be used for fulfilling its mission versus going to overhead expenses."
Also, asking for financial documents will allow potential donors to analyze the organization's financial health. "They should ask for a copy of their most recent annual report and Form 990," he says. "This outlines the charity's budget allocation and financial plans, and again, it can give more insight into how their money will be used to make the intended impact."
To be able to assist his clients with charitable donations, Dan will go over their goals and understand what they're trying to accomplish. "Once we have a target in mind, I'll look at their income stream first. We can utilize several strategies to help maximize the impact of their contributions while maximizing their portfolio efficiency."
He explains that one of these strategies is donating stock instead of cash. "For example, if clients have appreciated stocks in non-IRA accounts that may be subject to long-term capital gains, they can contribute the stocks directly to a charitable organization. Let's say a client has a stock valued at $2,000 that they bought 10 years ago for $1,000, and it would be subject to a 20% long-term federal capital gain tax.
"Option A is to liquidate the stock, pay taxes, and then make the $1,800 contribution to the charity. Option B is that instead of selling the stock, the individual donates the stock directly to a qualified charitable organization, and therefore, no sale of the stock occurs. The full $2,000 value of the stock is then transferable to the charity and then the charity - since they have tax-free status - does not have to pay long-term capital gains on the sale of the stock. Or, they can continue to hold it, and if it appreciates, the client's contribution can have an even greater impact."
Another strategic way to donate is by participating in workplace giving campaigns. "Sometimes an employer will match the client's charitable contributions, which can certainly increase the impact of their donation," says Dan.
Some people may think that donating to charity is an automatic tax deduction, but that isn't so. "Contact the organization to make sure that they can accept such gifts and that they do qualify for 501(c)(3) status, but also consult with your individual tax advisor to have a clear understanding of the ramifications of your donation."
Dan, who has over 16 years of experience in the financial industry, enjoys assisting people in his community with financial matters. "It's the only career I've ever had," he says. "I work closely with my clients and pride myself in building personal connections." This helps him identify their financial goals so he can tailor a customized plan to their specific situation and assist them in achieving those goals.
"I love this community," says Dan. "I can see my son's school out my office window. I picked up a coffee this morning from my favorite bakery in the neighborhood. Meeting people, having these neighborhood connections, and living and working in such a tight, close-knit community is something I value very much."
He's also glad to be working with Ameriprise Financial. "They are not your typical Wall Street company – they are based in Minneapolis, Minnesota. I grew up in Metro Detroit, so I'm a Midwestern kid through and through. I appreciate the Midwestern values they bring to the table.
To have Dan assist you with your financial goals, go to AmeripriseAdvisors.com/Daniel.J.Harrison.
"Having a plan in place can help avoid errors."
"There are a lot of variables in our increasingly complex world, especially with financial markets, and they should work with a professional to develop a plan specific to their situation."
