Posted By: Eugene Taylor
By Linda SternSat Nov 11, 10:55 AM ET
WASHINGTON (Reuters) - It's time to update the way you give
to charity.
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Americans are as charitable as they've ever been, according
to the Chronicle of Philanthropy. Last year they donated some
$62.7 billion to the largest U.S. charities -- matching the
highest year-over-year percentage gain in gifts since the
publication started tracking those numbers 16 years ago.
But donors are different than they used to be.
The idea of just writing one check to United Way is far
less popular than it once was. So is the idea of sending dozens
of small checks of $15 for every group's appeal that arrives in
your mailbox. The Bill & Melinda Gates Foundation -- created by
the Microsoft chairman and his family to help reduce inequities
around the world -- has inspired many to start planning their
donations the way they plan their retirements.
At the same time, Congress used this year's pension
legislation to tighten up the tax rules governing charitable
gifts.
Starting in 2007, the Internal Revenue Service will not
allow write-offs for cash donations unless they are documented.
Instead of tossing cash into that Salvation Army bucket, you'll
have to write a check. And remember to save your checking
account statement, since your bank probably isn't sending back
your canceled checks anymore.
Here's what you can do now to make sure your donations (and
your tax deductions) work the way you want them to.
-- Give now, choose later with a charitable gift fund run
by a mutual fund company or broker. It's significant that the
Fidelity Charitable Gift Fund (www.charitablegift.org/) was the
sixth-biggest donation-getter in 2005, according to the
Chronicle's figures.
This fund and others like it run like this: The mutual fund
itself is organized as a charitable organization. You can open
an account and give it a name like "The Smith Family Fund" for
instance. When you contribute to your account, you get a tax
deduction for the amount of your contributions. You can leave
the money there as long as you want and add to it whenever you
want. It gets invested and grows.
When you are ready to donate some or all of it, you simply
let Fidelity know and the company cuts a check on your behalf.
The charity knows it's you (or not, as you wish), but you don't
get any additional tax break for the check that goes to the
charity.
Funds like this are also run by Charles Schwab
(www.schwabcharitable.org/), T. Rowe Price
(www.programforgiving.org/), and Vanguard Investments
(www.vanguardcharitable.org/). These vehicles are good, and
getting better. Fidelity recently lowered its minimum opening
balance requirements to $5,000, and T. Rowe Price recently
dropped the management fees on its Program for Charitable
Giving to 0.5 percent a year; the lowest of all the major
programs.
To get an idea of how a program like this could work for
you, think about this: Donate $5,000 a year to the fund, but
don't take anything out for 10 years. If your account earns 8
percent a year, in the 11th year you'll have close to $90,000
to give away. That may be more than you'd ever give away all at
once, but it would enable you to make a very big change at any
charity of your choice. And it allows you to hurry up your
deduction this year but take as much time as you want in
choosing your charity.
-- Give securities. If you've got earnings on a taxable
investment, give the investment to charity before you sell it.
You can even use shares of a mutual fund to start one of those
charitable gift accounts.
It works like this: Say you paid $6,000 for some shares of
stock, and now it's worth $10,000. You can transfer the shares
to a charity, which gets to sell them tax-free. You get the
full $10,000 charitable deduction. If you sold the shares
first, you'd have to pay capital gains taxes on the $4,000
profit, reducing your deductible gift to $9,400, not counting
any commission you'd have to pay.
-- Give fewer, more generous gifts. You might have a number
of favorite charities, but try to limit that. Figure out which
causes mean the most to you before you decide whom to fund, and
then focus on those causes. Giving small amounts to many
charities mutes the impact of your gift and encourages myriad
charities to spend more and more money trying to get more out
of you.
-- Consider giving some money to a local community
foundation or charity. Smaller bucks can go further in hometown
charities like hunger and children's programs. They often have
lower overhead than big national organizations. You can watch
your money at work.
-- Do your due diligence. Check out your chosen charities
at http://www.guidestar.org to make sure they are legit before
you write those checks.
-- Learn the difference between spending and giving. Before
the recent mid-term elections, you might have sent money to the
party and candidates of your choice, but that's not tax
deductible charitable spending; it's just politics. Giving to
your church does count as a charitable gift; buying Girl Scout
Cookies, not so much.
-- Do write the checks. You'll want a record of how much
you gave and when. Not just for your tax return, either. It's a
safe bet that whatever charity you favor will be calling or
writing within weeks to ask for more, so it would be nice to be
able to say, "I just did that."
(Linda Stern is a freelance writer. Any opinions in the
column
are solely those of Ms. Stern. You can e-mail her at
lindastern(at)aol.com.)
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