This Holiday Season, Give With Your Heart -- and Your Head!

Dear Readers,
Whether you're moved by the holiday spirit or just the desire for a tax write-off, this is the time of year we traditionally think of giving, especially to charities. But if you want to give without being taken, you might consider adopting the approach the United States used in the nuclear disarmament agreement with the former Soviet Union: "Trust, but verify."

Before you start accusing me of being Scrooge, I'd like to say that I'm all for giving to charity. Frankly, why wait until December? If you really want to support your favorite cause(s), why not give all year round? The only thing I'm suggesting is that you investigate before you donate.

I'm not alone in making this recommendation. The Internal Revenue Service (search) and "GuideStar," a national directory for charitable organizations, have recently issued guidelines for givers.

For instance, if you're interested in a tax deduction, make sure the organization you're giving to is a qualified charity. In IRS-speak, that means verifying that the entity is what's called a "501(c)(3) organization" If it's not, you get no deduction.

Another point: you can only deduct a contribution for a specific tax year if you actually made the contribution that year. For instance, suppose that in November you pledged to give $100 to your local public radio station. Unless you write the check by Dec. 31, you cannot take a tax deduction for 2003. If you write the $100 check in January, you have to wait until you file your 2004 tax return to take the deduction. In other words, "pledges" are not deductible, only "donations" are, and only in the year in which they are made.

The vast majority of charitable contributions consist of cash or checks. However, in 2000, the latest year for which statistics are available, about 30% of donations consisted of property such as securities or, the increasingly popular used cars. Gifting appreciated stocks or other financial assets can be a win-win: Regardless what you paid for them, you get to deduct the current value of the securities and the charity can sell them without having to pay tax on the profit.

But since the price of a stock fluctuates throughout the day, this raises the question of which price do you use to determine the "fair market value" of your gift? Hint: it's not the price at which the stock closes. The fair market value of a security is the average of the highest and lowest prices it traded for on the day you made your gift. So if your stock traded between $20.00/share and $20.50/share, your gift is worth $20.25/share.

Determining the fair market value of other tangible donations is trickier. Take that old clunker you gave to the local homeless shelter. According to the IRS, despite what some charities might have you believe, using the "Blue Book" value of the car could be a mistake. You've got to consider the number of miles on your vehicle and the condition it's in, as well as what comparable cars are selling for in your area.

A recent report by the General Accounting Office found that charities often receive much less of a benefit from a donated vehicle than you might think. In two-thirds of the cases reviewed by the GAO, the charity ended up with 5 percent or less of the value the donor claimed as a deduction. That's because the organization has all the expense of processing the vehicle, as well as its fund-raising costs.

In addition, while it might make you feel warm and fuzzy to picture a needy family driving to church in your old car, the fact is that most donated vehicles are re-sold at wholesale auctions, where they bring in much less than the potential retail value of the car.

The IRS recommends, among other things, that you "speak directly to the charity" to make sure you understand just how much of a benefit it's going to receive. (For more information, check out the list of IRS publications at the end of this column.)

And don't forget, you need a receipt for any charitable donation worth $250 or more. If the gift you make is worth more than $5,000 (how nice of you to donate your 2-year old BMW...), you must have a written appraisal to verify the value of your deduction.

Just how much is your donation worth in terms of the income taxes it saves you? A handy rule of thumb is to multiply the value of your gift by your tax bracket. For instance, if someone in the 30% bracket donates $1,000, that roughly translates into a $300 tax savings.

Last but not least, keep in mind that you get no deduction unless you itemize when you fill out your income tax return. If, like two-thirds of all taxpayers, you simply take the "standard deduction," you don't receive any tax benefit for your charitable contributions.

Even if you could care less about a tax deduction, you should still do your homework before you make a donation. For starters, the folks at GuideStar suggest some soul-searching. Think about your motives for giving, the types of causes you support, even about where the charity conducts its work. For instance, are you more concerned about helping homeless families anywhere in the world, or in your own town? Check out "GuideStar's Tips for Choosing a Charity" on its Web site,

Once you understand what you want to accomplish with your contribution, then look for charities which meet your criteria. If you know the name of one, you can search for information about it on the GuideStar Web site. Its directory lists nearly a million public non-profits that are either registered with the IRS or have provided proof that they meet IRS criteria for charitable organizations. Or use the "Advanced Search" function, which lets you create a customized set of factors to narrow down the charities to those which best fit what you're looking for.

For instance, in the "Key Words" field, you can enter important characteristics such as "animal welfare" or "protect wetlands." Or use the "City and State" field to select only those organizations in a particular part of the country. If you want to focus on charities which provide assistance in your immediate area, you can enter a specific a Zip Code.

While the description of how a charity spends your money is important, GuideStar Communications Director Suzanne Coffman recommends you first read the "mission statement."

"A charity's mission is its purpose for existing," she says. "It's what they say they're trying to do -- ease hunger, prevent domestic abuse, promote animal welfare. Often people look at finances first and then the mission," she says. "But the true measure of an organization's effectiveness is how well it accomplishes its mission. Find the mission that matches your values."

The organization should also explain how it tries to accomplish its mission. Do they aim to provide immediate relief? Long-range solutions? Do they work for legislative change? Do they have outreach programs in local neighborhoods? The "how" part of a charity's mission should also match your own preferences. For instance, you and I might both agree on the need to help children born with physical disabilities. But to you, the focus should be on rehabilitation, that is, helping those children today. On the other hand, my focus might be on research to prevent similar cases in future years.

When it comes to phone solicitations, be careful. "Many legitimate organizations do phone solicitations, " according to Coffman, "But the wise donor says, 'Thanks, send me more information or direct me to your Web site.' Most charities are ethical, but there are people who take advantage of others. It's too easy over the phone to say you're something you're not."

If you make inquiries about a charity and don't feel you're getting straight answers, or are being subjected to high-pressure sales tactics, close your checkbook and find another organization worth your hard-earned dollars. As GuideStar says, " Reputable nonprofits will discuss their programs and finances, don't use pressure tactics, and will take 'no' for an answer."

The good news is that 39% of charities surveyed by GuideStar say donations are up this year over last. The bad news is an equal number say they've received less. And, due to the sluggish economy and tough job market we saw for much of this year, the vast majority of charities report that the demand for their services is up sharply... and so are their expenses.

So they need our help. Informed giving ensures that more money ends up in the coffers of the causes you care about.

Be generous. And don't wait a year until you give again. Remember that one of the most rewarding gifts you can give is: yourself. Time is perhaps the most precious commodity we have in today's overly-scheduled lifestyle. Consider volunteering to visit a nursing home patient on a regular basis, or commit to walking dogs at the animal shelter, or roll up your sleeves and spend a morning each month at the local soup kitchen.

After all, in truly generous giving, the biggest gift goes to the donor. It's the magical sense of connection to something larger than ourselves, the feeling we have made a difference, the pure joy of helping others.

That's the secret of heart-felt giving: it all comes back to you many times over.

Be wisely generous, my friends.



Helpful Web sites: In the box marked "Publication" type in "526" for general information about tax-deductible charitable gifts or "561" for details about valuing gifts of donated property. You can also order these publications by calling 1-800-TAX-FORM. You can search for information about a specific charity or run a general search for organizations that meet your criteria.



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The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.