Suggestions for Year-End Charitable Giving
by Fran Goldman, MBA Washington, DC
“We make a living by what we get.
We make a life by what we give.”
— Variously attributed; author unknown
Most people include charitable giving as a part of their financial lives. In 2009, 65% of households gave to charity, with the average household contributing $2,213. Many individuals focus on charitable giving at the end of the year.
In addition to thinking about charitable giving and its favorable tax treatment, it is important to think about how can we make our philanthropy more meaningful, both to us as donors and to the charities we want to support. Here are a few things to consider.
Connect your philanthropy to your values. What do you want to support? Do you want to spread your net wide or concentrate on a few areas of interest? Consider creating a spreadsheet to track your contributions by categories like education, health, religion, environment, social service, international aid, civil liberties, disaster relief, arts and culture.
Decide whether you’d prefer to make several small gifts or fewer larger donations. Unlike investing, where diversification is key, philanthropy allows you to think about your priorities and focus your generosity in those areas.
Will you contribute to small or large charities? Local, national, or international organizations? Given your financial resources, would you rather be a big fish in a small pond or a small fish in a big pond? Consider whether you want to engage with a charity beyond being a donor and become involved as a volunteer. Which organizations offer this opportunity?
Consider offering unrestricted gifts. Most charities prefer unrestricted gifts that they can apply as they see fit. If you wish to designate your gift for a particular purpose, contact the charity to be sure it aligns with their mission and priorities. Not all charities may offer the giving opportunities you would prefer.
You can minimize unwanted solicitations from charitable organizations. When you send in your year-end contribution, include a note stating you do not want to receive more than one solicitation each year, do not want phone solicitations, and do not want your name shared with any other organization.
If you want to instill philanthropic values in your children, include them in discussions of charity. Explain why you’ve chosen certain charities, and ask their opinion about your choices.
Remember the basic rules. You must itemize deductions to be eligible to deduct your charitable contributions. Generally, you can deduct up to 50% of your adjusted gross income (AGI) on cash gifts and up to 30% on gifts of marketable securities.
Consider enhancing the value of your gift by donating appreciated stock. You receive the charitable deduction for the fair market value of the stock on the date of transfer, without paying tax on the capital gains you earned.
You might also consider donor-advised funds (DAFs), an increasingly popular philanthropic vehicle. The National Philanthropy Trust projects an increase of 10% in assets in DAFs in 2012. With a DAF, you get an immediate tax deduction for your contribution (often appreciated stock). In later years, you can make grant recommendations to specific charities over the life of the DAF. DAFs are easy to establish, simple to manage, provide the ability to make anonymous gifts, and can establish a legacy for philanthropy. You can set up a DAF at your investment broker or with community foundations, faith-based or-ganizations, universities, or specific charities. You may need to consider a DAF’s fees, minimum initial contribution, minimum ongoing contribution, minimum grant, investment options, grant-making restrictions, and level of donor service.
IRA owners age 70½ or older may make qualified charitable distributions up to $100,000 from their IRAs through 2011. The distributions to charity, which would otherwise be taxable, are excluded from gross income for federal tax purposes and may be counted toward annual required minimum distribution (RMD) with¬drawals.
And of course, remember that for contributions of $250 or more, you must obtain and keep a written acknowledgment for a charitable contribution. Don’t risk losing your tax deduction in an audit for lack of a written record from the charity.