How to Donate Money Effectively Whether it’s the holidays or an unexpected disaster, Americans are always willing to donate to those less fortunate. It’s the easiest thing in the world for us to open our checkbooks to a worthy cause without a second thought.

Yet your donation, regardless of size, should make the largest impact possible on your cherished causes and issues. When you support a charity’s best interests, you’re not selfish to support your own as well.

Give to efficient operations

In a perfect world, every cent you donate would go to fulfilling the mission you support. But some portion of every dollar goes to staff salaries, rent, fundraising, mailings, and possibly professional telemarketers. These expenses may leave your cause with very little.

Well-run organizations put most of your money toward their services or programs, not their operational overhead. The American Institute for Philanthropy recommends that no more than 40 percent of your charitable donation should go to overhead expenses; other charity watchdogs advise 25 percent. (This may not apply to newer, smaller, or more obscure causes.)

This percentage can be determined by requesting a charity’s IRS Form 990, required for a nonprofit to prove its tax-exempt status. Federal law requires charities to provide the form for the past three years to anyone who asks. Divide line 13 (Program Services) by line 17 (Total Expenses) to calculate the percentage paid to services and programs versus overhead expenses.

You can research charities with The American Institute of Philanthropy’s www.charitywatch.org, the Better Business Bureau Wise Giving Alliance’s Give.org, or Philanthropic Research, Inc’s. www.guidestar.org. All provide information on charities and their efficiencies.

You can also ask for the charity’s annual reports. The report should include the mission statement, board of directors, and the year’s accomplishments and finances. See if the charity’s goals seem reasonable and achievable. If the charity tells you a report isn’t available, is too expensive to mail, or otherwise discourages your interest, don’t contribute.

Avoid the scam artists

Unfortunately, there are people who try to take advantage of others’ generosity. Here are ways to reduce your chances of falling victim:

• If a solicitor mentions previous pledges you don’t remember, check your records first. Don’t fund donations you didn’t make.

• Don’t provide personal financial information in an e-mail, over the phone, or to door-to-door fundraisers. Use a website like www.networkforgood.org to donate safely with your credit card to over one million organizations. Ignore email solicitations from organizations you don’t support.

• Never give cash, or make checks out to Cash, or to an individual. Write checks out to the charity’s exact name, not initials. Some scammers use names that are similar to well-known ones.

• Don’t be swayed by on-the-spot high-pressure tactics or emotional sad stories. Ask for written information, or check the charity out online first.

• While many representatives for charitable causes are genuine, be aware of swindlers who often pretend to represent causes for missing children, soldiers or veterans, firefighters and police, or whatever disaster is in the news.

Know your tax benefits

Your philanthropy may provide possible tax advantages. Tax exempt organizations are not required to pay taxes. Tax-deductible donations are those you can deduct from your taxes if you itemize. The IRS has a listing of organizations to which deductions are tax-deductible per section 501(c)(3) of the Internal Revenue Code.

The IRS now requires actual receipts for all tax-deductible contributions of $250 or more. You should use an independent appraiser when donating property worth more than $5,000. The IRS won’t take your or the charity’s word for it. Consult your tax advisor for more help.

Reduce your solicitations

Many charities rent or trade their donor lists to other organizations to raise much-needed funds. As a result, you might get more requests in the mail the more you donate. The National Do Not Call Registry doesn’t apply to nonprofit organizations.

You can send a letter, along with your donations, asking that the recipient not rent, sell, or trade your personal information, name, or donation history to anyone. Or ask the recipient to limit its solicitations to only a few times a year. Explain that your future support is contingent on its cooperation.

When your charity complies with your request, consider increasing your donations to reward it and to offset any lost revenue from renting your name.

If you are receiving unsolicited address labels, note cards, pens, pads, or other gifts from charities, you are not obligated to make a donation in return. To stop receiving these mailings, return the charity’s envelope with a note requesting that your name be removed from its list. Be aware, however, that the organization might not be able to remove your name if it rented the list from a list provider.

Politely decline in-person solicitations by saying, “I limit my support to charities that I know well and support the causes that are most important to me.” Consider concentrating your support to singular missions, such as curing cancer; or to helping institutions in your hometown.

Become a stakeholder in the cause you support. You deserve to know how your money is used. With a little research, you can feel confident your donations are being used wisely to better the world.


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Gary Williams is a financial adviser and the President of Williams Asset Management practicing at 8850 Columbia 100 Parkway, Suite 204, Columbia, MD 21045. He offers securities and advisory services as an investment adviser representative of Commonwealth Financial Network®—a member firm of FINRA/SIPC and a Registered Investment Adviser. He can be reached at (410) 740-0220 or at Gary@WilliamsAssetManagement.com.

Labels: Charitable gifts, Donations

  9:15 AM •  0 Comments •

Are Charitable Gift Accounts Right for You? Charitable gift accounts may be a good idea for individuals looking for a tax-advantaged way to support their favorite charities, improve their estate tax situation or bring more order to their gift-giving strategy. These are not necessarily inventions for the rich – some of these accounts can start with an initial contribution of $10,000 and allow additional contributions of as little as $1,000.

Charitable gift accounts offered by financial institutions come in two varieties -- donor-advised funds or pooled-income funds. Donor-advised funds allow a donor to deposit a specific amount in the fund, take an immediate tax deduction up to the full value of the contribution, select investments among the choices provided by the investment company and then recommend which charities will receive money from the account over time. Pooled-income funds, meanwhile, pay the donors a fixed income for life from the fund. The balance of the account is paid to the donor’s designated charities after the last designated income beneficiary dies.

Depending on a donor’s particular situation, these two options can be an attractive idea depending on whether the donor’s focus is maximum tax deduction or income for life. That’s why it’s a good idea to discuss either option with a trusted financial adviser such as a CERTIFIED FINANCIAL PLANNER® professional or a trained tax advisor to see if either of these or other tax advantaged charitable options are right for you.

Some general points about these options:

Know the kinds of assets you can deposit: Most funds will allow you to deposit cash (by check), publicly traded stocks, bonds and mutual fund shares and, in some cases, life insurance policies. Your tax deduction will depend on the type of asset you donate. Gifts of cash are limited to 50% of your adjusted gross income while gifts of stock are limited to 30% of AGI. Unused charitable deductions in one year may be deductible within the following five tax years.

You can reduce the overall size of your estate: In 2009, the federal estate tax exclusion amount is scheduled to be $3.5 million, but federal estate taxes are will be repealed in 2010 for one year only. Unless Congress enacts new laws, the estate tax exclusion will be re-set to $1 million in 2011. No one can know the future, but for taxpayers with significant estates, charitable gift funds might be a good way to reduce the size of a taxable estate.

You need to keep an eye on fees: Always consider management fees when considering any potential benefits. You will probably be paying higher fees than the average index investment or similar pooled investment. The organization that offers the charitable gift account handles any legal, administrative, and filing requirements (including tax returns). These costs are factored into the fees. However, because the charitable gift account is administered as part of a larger organization, the fees are generally lower than those incurred by a family foundation.

This decision is irrevocable: Understand that your gift is final. Because of the tax-advantaged treatment, you’re not going to be able to reverse this decision if you find you need the money later. Give careful consideration to how prepared you are for retirement and long-term care spending before you make this choice.

Watch the IRS: The Pension Protection Act of 2006 mandated the Treasury Department to study donor advised funds and make recommendations to Congress about the tax deductibility of donor contributions and the donor’s ability to make recommendations as to which charities will benefit and when.

Labels: Charitable gifts, fees, Financial planning

  9:28 AM •  0 Comments •