Tips for charitable giving
Here are five steps to make the most of charitable giving.
1 Do a background check
There are a number of sites, including Charity Navigator and GuideStar, that give details on how individual charities spend their money. To evaluate the financials of a charity, compare the overhead/administrative costs to the direct service costs (the costs of the actual charitable work). It is normal for organizations to spend about 20- 30% of the overall cost to run the organization on the administrative costs that are related to the services provided, says Durham.
But neither Charity Navigator nor GuideStar lists every single charity on its site. So, for smaller organizations, ask for the Form 990 which will detail expenses. Then, check out this guide for more information on how to read those statements.
You should look for organizations with independent boards, whistle-blower protections and policies to avoid conflicts of interest. “These help prevent scandal,” she says, such as misuse of funding or improper use of assets. Dependability is also important; some organizations like the Salvation Army have clear, historical reputations. Barring that, ask your network of peers who they give to and why.
2 Check the tax implications
In return for a charitable gift, the giver gets a nice tax deduction if they itemize their deductions. But there are a number of rules one should follow. It’s usually only worth itemizing if all deductions, including charitable donations, are above the standard deduction amount, which is $5,800 for singles and $11,600 for married people filing jointly. Itemizing can lower the total amount of income one is taxed on.
Secondly you should request a receipt from the charity for donations of $250 or more. The IRS typically requires receipts for these transactions. (Note that donations to political parties, labor unions, for-profit school and hospitals are not tax deductible.) The form a gift takes is important too. For example, cash donations are usually fully-deductible, whereas you may only be able to deduct your cost basis on property unrelated to a charity’s mission.
3 Ask the charity how it prefers to be paid
Charities often must pay between 2% to 5% of the total transaction fee when gifts are made by credit card. That fee can eat into the gift. On the other hand, it costs money to pay someone to open the mail and deposit checks. So ask the charity for its preferred method of payment.
4 Give appreciated stock
This is one of the most cost-effective ways to give. The reason: It helps givers avoid the capital gains tax. Let’s say one bought a stock for $500 and it has appreciated and is now worth $1,000. By donating the $1,000 stock to a charity, the giver won’t pay taxes on the $500 worth of gains. By selling the stock, one has to pay taxes even if the proceeds are then given to charity.
5 Consider donating time
Those who would like to give back but have tight budgets may consider volunteering. You’ll feel great, and although time spent volunteering isn’t deductible, transportation and related expenses are.
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