Seven Things You Need to Know to give Wisely

Expertise

excerpts from Autumn 2004 Stages Magazine by Fidelity Investments pgs 20-21

America is surely a nation of givers.  In 2003 alone, individual donors gave more than $179 billion to charities, according to the American Association of Fundraising Counsel Trust for Philanthropy.  That’s nearly three-quarters of all the giving in the United States.

All that considerable giving can only be enhanced if you approach your giving as you would any investment opportunity, notes Renata J. Raffery, a consultant on charitable and philanthropic giving an author of Don’t Just Give It away: How to Make the Most of Your Charitable Giving.  “Investing in charity is no different than investing in the market,” she point out.  “It is a proactive process of defining your investment goals and identifying opportunities that will lead to those goals.”

To help ensure your contributions reflect your intentions in the most efficient way possible, consider the seven tips below.

1.  Determine your giving goals

Your values and your own life experience will, of course, help shape your giving goals.  But to further refine those goals so you can target your contributions more specifically, ask yourself , “What sphere of influence do I want to have?”  For example, if your goal is to improve education, you  might consider whether you want to educate one child in the community through college, strengthen community schools via a local foundation that supports them, or give to a think tank or research group studying educational policy on a nationwide scale.

2. Determine your giving focus

Ask yourself what kind of charity you are most comfortable supporting, and in what ways.  “A large, well-established charity is akin to investing in a blue-chip stock,” says Rafferty, whereas “smaller, newer, grass-roots charities will not have as extensive a track record.  However, your contribution may have a greater impact there.  You also have the option of specifying how you want your contribution to be used, she notes: “You can specify if you want to support their direct program costs, help with the administrative expense that every charity faces, or direct your money to the long-term work of the institution via their endowment fund.”

3. Do a ‘reality check’ of your charity’s nonprofit status and effectiveness

Your first step could be to consult GuideStar, a national database that offers basic program and financial data on approximately 850,000 nonprofit organizations.  “This will help you confirm that the charity is listed with the IRS, which qualifies your contribution for a tax deduction,” notes Rafferty.  “Guidestar’s Web sit (www.guidestar.org) also archives past tax returns and Form 990s (a charity’s information tax return) for the organizations listed. 

4. Select your charitable giving vehicle

Of course, you can simply send a check directly or charge your contribution to the charity you choose.  But other methods offer some distinct advantages.  A donor-advised fund (DAF) is a popular charitable giving vehicle.  Set up as a public charity, a DAF invests the contributions of individual donors, who than recommend how the funds will be distributed to other charities.  You can make a contribution (typically, DAFs require an initial minimum contributions of $10,000), take an immediate tax deduction (up to 50% of your adjusted gross income for cash contributions, 30% for appreciated stock), and have the gifts distributed over time.  “With DAFs,” says Rafferty, “donors have time to react rationally rather than emotionally when considering a charity’s appeal.”

DAFs offer other benefits as well, according to Jon J. Skillman, president of the Fidelity Charitable Gift Fund (www.charitablegift.org).  “A donor-advised fund simplifies the whole process of giving, making it more organized and fun,” says Ski8llman. “We manage all of the paperwork so that you can focus on what matters most to you, your giving.  Our donors enjoy the added benefit and ease of placing their grant recommendations online, if they so choose.”

Community foundations are set up to distribute funds to nonprofit organizations located in a particular area.  The offer tax deductions (the rules are the same as for DAFs) and the opportunity to pool your money with others in your community.  For those with substantial assets to give away, private foundations offer donors full control over which groups receive donations, but involve complex bookkeeping and tax rules.  Experts recommend you have at least $1 million to give away before considering one.

5. Make giving a family affair

Involving an entire family in the giving process yields benefits far beyond the money given. “By involving children at a relatively young age,” notes Skillman, “you can bring families together in a common purpose, and ensure that values and beliefs get passed on to future generations.”  To make the giving process more concrete for children, Rafferty recommends that parents give children choices about charities, and take them to visit community organizations they are considering donating to, such as a food back, homeless shelter, or museum.

When children are allowed to bring their own ideas to the giving process, some unique gifting can result.  Skillman notes that among Fidelity donor grants was one suggested by an 11-year old girl who, with her parents, designed money to allow for the translation of the first Harry Potter book into Braille.

We’ve had many instance of parents and grandparents setting up a DAF for other people in the family,” says Skillman.  “It’s a wonderful way to foster the great American tradition of philanthropy.”  One grandmother with an account sends letters with grant-recommendation forms every year to her children and grandchild, with a dollar amount specified, and allows them to fill in the charitable cause.      

6. Be tax-savvy to maximize contributions

The IRS requires receipts for cash and gifts to qualified charities that are worth $250 or more.  You’ll also want  receipts for money spent at charity events – where dinner or some other token of thanks is provided – because your deduction can’t include the value of those goods or services.  For example, if you buy a $200 ticket to a benefit and get a $60 meal in return, the charity is required to give you a statement noting the value of the service provided; in this case, $60.  You would be able to deduct the remaining $140.

Giving stock that’s appreciated in value and that you’ve held for more than one year – instead of selling it first and then donating the cash—can benefit both you and the charity.  By donating stock, you avoid capital gains on the profits and get to take the full value of the stock as a charitable deductions.  The charity receives the full value of the stock when they sell it.

Let’s say you own stock worth $1,000 that you bought for $300 more than a year ago.  If you sell it now, you’ll pay federal capital gains tax of 15% on the $700 profit.  But if you give your $1,000 worth of unsold stock sha4res to a charity, you get a tax deduction for the full $1,000.  The charity, which does not pay income taxes, received the full value of your gift ($1,000) when it sells the stock.

7. Review your choices periodically

Many factors can alter your giving preferences; the needs in your community may change, or your own goals may change due to your stage of life or a profound personal experience.  If you learn of other charities doing work you’d like to support, consider dividing you donations, or alternating which charity receives funds.

 “Whatever your choice of charity,” sums up Rafferty, “give with purpose, as well as with joy.”

© 2004 Mental Health America of Hendricks County  All Rights Reserved