Dear Readers -
'Tis the season for being generous. In fact, on average, charities receive 30% of their annual funds in the last three months of the year, according to Daniel Borochoff of the American Institute of Philanthropy. Among non-profit organizations which serve the needy, the number is even higher -- in the fifty percent range. Just be sure when donating that you give with your head as well as your heart.
Before you fork over a dime, the folks at GuideStar, an organization which monitors non-profits, say you should decide how much in total you can reasonably give. This way, you're not guilt-tripped into being more generous than you can afford. You don't want to end up on the receiving end of a charity next year!
Once you -- or perhaps your family -- decide upon an amount, the next step is to think about the kinds of causes you care about and want to support. That will narrow down the list of potential recipients. If, for example, you care about environmental issues, you can choose from a wide range of groups, from the national Sierra Club to local grass roots organizations.
But don't stop there. GuideStar's Suzanne Coffman says you should also think about how you want your money spent by an organization. Would you like it to go to an organization whose priorities are education and long-term solutions or one that focuses on immediate relief? An example of the latter would be a non-profit which knits sweaters for penguins. "I am not making this up!," swears Coffman. "When penguins are cleaned up after an oil spill, they lose the natural oils which coat their feathers and protect them from the cold. Once this comes back, the sweaters are cut off and the penguins are released into their natural habitat. "
Do you want your support to go to an international, national or local organization? Would you feel better knowing your hard-earned dollars were being used to teach people in Africa how to grow their own food or do you want to support a community food bank?
Once you've thought these things through, then you're ready to narrow down your list of potential recipients. Keep in mind that you can only deduct a charitable donation if you itemize it on your income tax return. Everything you contribute to charity will reduce your taxable income on a dollar-for-dollar basis. If you give $100 to the Humane Society, you can reduce your Adjusted Gross Income by $100. The higher your income tax bracket, the more significant the tax break you get.
Try to make your donations by check or credit card so you have a record of the transaction. If you give more than $250 in a single gift, be sure you get a receipt from the organization which states whether you received anything in return for your contribution (dinner, a token gift) and if so, what the value of this item was. This will reduce the amount of your donation.
Don Roberts of the IRS media relations office says taxpayers get into trouble because they don't realize that, by law, the charity's receipt must be dated no later than the date you submit your tax return. For instance, say you file by April 15th, but don't yet have a receipt from a charity you gave $300 to in 2002.
When you get audited a year later, you contact the charity and ask for a receipt. Too late. You lose the deduction.
A number of charities have started asking you to donate your old car. But don't think you can write off the Blue Book value of your clunker. In order to use an independent guide to estimate the value of your gift, your vehicle must be a perfect match in terms of make, model, same area of the county and in the same condition. Remember, if you're audited, it's up to you to justify how you arrived at the value of your donated vehicle.
Note: regardless what form your contribution takes, any time you claim a donation in excess of $5,000 you have to get an independent appraisal.
Keep in mind you can only deduct contributions to bona fide charities. Except for those with religious affiliations, this means any organization that in IRS lingo is classified as a "501(c)(3)." Not sure whether a group qualifies or not? At www.guidestar.com, you'll find more than 800,000 charities listed, with details on more than 300,000.
Sadly, these days it's more important than ever that you check out where your money is going. Every hear of the "Benevolence International Fund"? Makes you think of a warm glow, people hugging, and grateful smiles. But you ought to be thinking: "Usama bin Laden." The federal government is investigating the Benevolence International Fund for possible ties to terrorist organizations.
Both GuideStar and the American Institute of Philanthropy warn us to be careful of "sound-alike" or "tag-along" organizations. While the "American Cancer Society" is a legitimate charity, what about the "American Cancer Organization"? Or the "American Society for Cancer Research?"
Be wary, too, of groups which are raising money on behalf of a legitimate charity. Non-profit organization that don't have fund-raising arms will often hire an outside company to raise funds for them. Borochoff says he found out a year after he donated that a group collecting on behalf of the local police benevolent society actually kept 85 cents out of every dollar it received! It's better, he says, to give directly to the non-profit organization you want to support.
GuideStar's Coffman says that you should consider a non-profit's finances only after you've narrowed down your search of worthy charities. "Many people start there, but we think that's the wrong way to approach gifting."
First, figure out how much you can comfortably give, then come up with how you want your money spent, then look at such things as where the money goes in terms of expenses.
They key number is the "Program Ratio," which tells you what percentage of a charity's total income is going to "the cause." To calculate this, you have get your hands on Form 990, which most non-profits file annually with the IRS. (Religious organizations and charities with less than $25,000 in income do not have to file this form.) Look up the amount on Line 13 under "Program Service Expenses." Divide this by the amount you find on Line 17 under "Total Expenses" to get the "Program Ratio." This number will
give you a sense of how efficiently your donation is being used.
When available, GuideStar provides Form 990 on their Web site. But don't just look at last year's ratio. Coffman says you should look at 3 years' worth of tax forms to get a sense of any trend. For instance, if the percentage being spent on a charity's "mission" has been going down for the past three years, you should ask why this is the case. If you get a run-around or an answer you're not comfortable with, that should be a red flag. Consider donating your money elsewhere.
Don't expect all charities to have the same program ratio. The average ratio for art museums is 68%. For a food bank, it's around 94%. So be sure you compare non-profit organizations that have similar missions.
Charities need your help more than ever this year. Many saw their donations drop last year as money was funneled into organizations connected to the 9/11 tragedy and have not seen contributions rebound this year. In a number of cases, government help has been cut back because the slow economy has resulted in lower tax receipts. And the stock market decline has hurt the portfolios of corporations and philanthropists, who have also reduced their donations.
So give as generously as you can comfortably afford. But give smart. Support worthy causes. Keep good records.
May you and those you love have a joyful and safe holiday.
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