Giving your own way: Doing charity right
Charity can get complicated. There is no “wrong” way of giving, but you can certainly maximize your gift in a number of ways.
We all give in our own way. A neighbor recently invited us to help at a homeless shelter. That was his way of giving back.
Service tends to be the best gift because it’s a direct contribution and you can often feel the results. I still can’t express enough gratitude for the meals my neighbors prepared when my wife was ailing last year.
What if you simply want to target a handful of charities to maximize your donations this year? There are thousands of organizations in ever greater need; contributions to the 400 biggest groups dropped 11 percent last year.
Aid to those in poverty is also welcome and addresses a growing need. According to the Census Bureau, some 44 million people in the U.S. fell below the poverty line last year, up from 40 million in 2008.
There is another way of helping that is focused on charitable efficiency. I know this is a strange word to use in altruism, yet it refers to how much of your dollars actually reach the “mission” of the charity.
Like for-profit corporations, non-profits can grossly overpay their executives and waste money.
Some charities burn up a lot of money paying for expensive promotions and events. The more-efficient groups employ more than 80% of their income on programs that actually help people in need.
One of the first places to look when vetting a charity is its Form 990. This will show you how much the group is spending on expenses relative to income. Although it will give you some idea of its efficiency (ratio of income to program spending), you might be better served by using a service like Charity Navigator, which rates thousands of charities. Guidestar is another reliable source.
If you’re concerned about a tax deduction, you’ll need to ask a different set of questions, such as:
* Is the charity registered with the IRS as a 501(c) 3 or 501 (c) 4 group? The IRS permits a deduction for the former but not the latter, which may do lobbying.
* Do you itemize? If you don’t list specific donations on Schedule A on your federal tax form, you can’t claim write-offs, which are limited to from 30 percent to 50 percent of your adjusted gross income. See IRS Publication 526 for a list of what you can deduct.
* Be careful with benefit events. You can only deduct the amount exceeding the fair market value. So if you attended a charity dinner for $250 and the dinner was worth $50, you can only deduct $200. You can’t claim a deduction for your services or for political contributions.
* Stock and other financial gifts are deductible at fair market value. This can get complicated, though, especially if this is involved with estate planning. As with other tax matters, contact your tax planner or lawyer.
You can also be quite creative in the way you give. You could combine service with direct cash gifts. I’ve seen many volunteers who work regular hours with a charity or hospital and provide donations through their estate plan.
Speaking of estate planning, you can contribute before you die through regular ongoing gift programs, set up annuities or charitable remainder trusts, which trigger a larger gift when you pass.
Flummoxed about deciding which cause is worth your contribution? You can delegate your money and decision making to a donor-advised fund, which leaves the donations up to professional managers. These entities are run by nearly every large mutual fund organization such as Fidelity Investments, T. Rowe Price and the Vanguard Group.
Whatever option you choose, keep in mind that charitable planning is a cautious art and shouldn’t be done on impulse. Thousands of charities spend too much on telemarketing (avoid those that do) and too little on the people they are supposed to help. By being careful and doing research, you can aid a lot more people.
Photo: A girl makes a cash donation to the United States fund for UNICEF in Philadelphia, Pennsylvania, January 15, 2010. REUTERS/Tim Shaffer