Charitable Giving

Arthur Ashe once said "From what we get, we make a living. What we give, however, makes a life."

Part of the reward for working hard all of your life and accumulating wealth is that you can extend the reach of your life through charitable giving. As a matter of fact you might be surprised to learn that giving to your favorite charitable organization might even have some added personal financial benefits.

A few years ago congress passed legislation to encourage philanthropy. In an effort to accomplish that congress provided a number of tax breaks for charitable giving. Favorable tax consequences both now and later can be achieved by using some judgement in selection of charity, the type of asset and the method in which you choose. Below is a partial list of benefits that you might receive from a charitable donation to a non-profit organization.

Federal estate tax reduction. The gift that you give today reduces the value of your estate today. In other words, the federal estate taxes that your beneficiaries incur may actually be lower because you donated assets prior to your death to charity.

Capital gains tax avoidance. If you are smart about what assets you give to charity, you may save yourself some capital gain taxes on this years return as well. A good example is an appreciated stock. If you have held on to the stock for more than a year and you sell the stock and then give the proceeds to a charity, you will have to pay capital gains tax of up to 20% plus applicable state tax. However, if you wish to donate to a charity, why not consider donating the stock itself. By donating the stock to the charity, you allow the charity to either keep the stock or sell it. If they sell it at the market price the same as you would have, you are not responsible for taxes on any of the gain, but get to write off the appreciated value of the stock as a gift. By using this technique, the saving on taxes actually reduces the net cost of giving.

Income tax deduction. If you are considering donations to charity and are not currently itemizing your deductions, consider adopting a strategy that has you giving larger gifts during some years and itemizing during those years. An example might be to donate double the yearly amount to charity every other year.

If you currently itemize your deductions, then you are aware that one benefit from giving is that you can reduce your income with charitable deductions by the amount that you are giving. The effective amount is based on your marginal tax rate. In addition, there may be other tax implications that may come into effect; such as maximum of 50 percent of your adjusted gross income in any year and the special 30 percent limitation on certain capital gain property, so make sure that you consult with your accountant or tax advisor.

A good place to start with a giving plan is to decide what kind of organizations you think are important. This can include not only deciding which kind of organizations are important to you, but how about your children or grandchildren? How far do you want to extend the purpose of your philanthropy?

In making this decision, you may wish to consult your parents, children, grandchildren or friends. Solicit their advice in helping determine where your donations can have the most impact and be most rewarding to you and your family.

After you have decided on the kind of organization that you would like to support, then do your homework. There are many organizations out there. Some will do a better job than others of maximizing your gift. Some may even be scams so be careful. Careful consideration should be paid to the organization by doing the following:

  • Learning about the different organizations by reviewing the Board of Trustees for the organization.
  • Examining IRS Form 990 prepared by the organization.
  • Talking to others who have donated to the organization
  • Reviewing information on charitable organizations using the internet. A few sites that will get you started are listed below.
  • Calling or writing and asking for literature on the organization. See if the message of the literature is consistent and in line with your ideals for helping.
  • Visiting the local offices of the organization and spending some time there to get the feeling of the organization and its purpose.
  • Determining what kind of giving you want to do. Are you interested in a one-time gift, an endowment or just helping on a special project? Do you want to contribute to several organizations or make a bigger gift to just one?
  • You might even consider volunteering your time and influence in helping the organization as extra benefits.
  • Determining how much you are comfortable giving and during what time period you will make your contributions. Will they be annually, semi-annually, quarterly, monthly or one time?

Now that you have done all of that, it is a good idea to review your giving plan on a regular basis. You should ask yourself a few questions here as well. How well did you stick to your plan? How did you feel the organization did in meeting its goals? Is the organization using its resources (your contributions) in an effective manner? Has the organization changed its focus? Have your wishes for donating changed during the past year? Are you accomplishing what you want with your giving? If not what could you do to make it better?