How Much Should I Donate to Charity?

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When it comes to charitable donations, Americans are more generous than any other country. According to the National Philanthropic Trust, Americans gave $471.44 billion in 2020. Deciding how much of your income to donate is ultimately a personal decision, but there are some things to keep in mind as you try to determine how much to give to the causes that matter most to you.

Deciding How Much to Give

Here are some of the considerations to keep in mind as you try to determine how much you want to give to charitable organizations.

What Does Your Budget Look Like?

If you've ever flown on an airplane, you've probably heard the spiel about putting on your own mask before assisting others in the event that the cabin loses pressure. The same concept applies to charitable donations.

That doesn't mean you shouldn't donate any money unless you're financially secure. But if you barely have enough money to take care of yourself and your family, you might not be in the best position to give, at least not as much as you'd like.

Take a look at how much you have set aside each month for things like entertainment and luxuries (discretionary spending) and think about how much of that you might like to donate. You can reevaluate your decision when you get a raise or receive some type of windfall, such as a performance bonus at work or a tax refund.

How Are Your Other Financial Goals Going?

In addition to making sure your current financial needs are met, it's also important to consider how you're building a foundation for your financial future.

Make sure you also think about your financial goals, such as your retirement, education savings, debt payoff, home down payment fund and more. How flush is your emergency fund? It's a good idea to have enough money set aside to cover three to six months of your necessary expenses in case you lose your income.

Again, the important thing is to find a balance between taking care of yourself and helping others. If donating to charity could compromise your financial stability, it might be a reason to reconsider.

How Often Will You Give?

You'll need to decide if you want to make donations to your favorite organizations on a recurring basis or as a one-time gift.

For example, you may decide to only donate when you receive some extra money that doesn't normally go into your monthly budget. Or you may wish to donate on a monthly, quarterly or annual basis, incorporating your giving into your budget as a spending category.

Whatever you decide, make sure it aligns with your financial ability and your values.

How to Find Charities

As you work through the decision of how much to donate to charity, you'll want to make sure that your money is being used efficiently. Some organizations spend oodles of cash on executive compensation and fundraising, leaving less money for the actual services they provide.

You can use websites like Charity Navigator and GuideStar to dig into how well charitable organizations manage the donations they receive and the different programs they provide. You can also visit the IRS website to determine whether an organization has 501(c)(3) status, which is necessary if you want to be able to deduct your contributions on your tax return.

If you already have organizations in mind, search for them on these websites to determine if they meet your requirements based on how they operate. You can also search for new charities to consider based on what causes are most important to you.

Are Charitable Donations Tax-Deductible?

If you donate to a 501(c)(3) organization, your donations are deductible on your tax return. Notably, donations made to individuals are not tax-deductible. This includes any donations you make through platforms like GoFundMe and JustGiving.

It's important to keep in mind, though, that even if a donation is tax-deductible, there are rules you'll need to follow to take advantage of the tax break. More specifically, you'll need to itemize your deductions when you file your tax return to claim the charity donation tax deduction. The IRS allows taxpayers to deduct up to 50% of their adjusted gross income in charitable contributions.

However, it doesn't make sense to itemize your deductions unless the total of those deductions is higher than the standard deduction for your filing status. With the standard deduction for single filers in 2021 at $12,550 for a single filer, it might be hard to justify itemizing—even with additional deductions such as mortgage interest and unreimbursed medical expenses. You'll want to consider speaking with a tax professional or using a tax preparation service to help you determine whether or not to itemize.

If you itemize your charitable contributions, you'll reduce your taxable income, which can lower how much you owe in taxes (or even increase your tax refund if you're meant to receive one).

Can Giving to Charity Improve Your Credit?

Charitable contributions don't directly impact your credit score in any way. As you decide how much to give to charity, though, consider how it might affect your ability to make your debt payments. If you miss one because you stretched your budget too thin, your credit score could take a significant hit.

As always, stay on top of your budget and monitor your credit regularly to ensure that you're using your money wisely and building and maintaining a good credit history. The better your credit, the easier it will be to qualify for low interest rates on loans and low insurance rates, which could free up more cash flow for your philanthropic efforts and other financial goals.

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