For many individuals, the end of the year personal-finance routine includes not only beginning to collect receipts and financial statements to prepare their tax returns, it also means that it’s time to write checks and make donations to their preferred charities. These charities might be ones that the individual has had a relationship with for years, or an organization they’ve only recently become interested in, or perhaps even one that helps assist in recovery from a recent natural disaster.
But there are smart ways to donate, and not so smart ways to donate. Here are some pointers to make sure that you’re getting the most from whatever charitable donations you choose to make.
Donate Directly. It’s important to make sure that whenever you choose to make a charitable donation you make sure to do so directly to the charity itself, and not to any type of middleman or intermediary. Unfortunately, there are scam artists who use natural disasters and other tragedies as an opportunity to use telephone and online solicitations to target generous individuals. Instead of taking a chance that the person who’s asking you for money doesn’t actually represent the charity they claim to, send your checks directly to the charity itself, or donate through their website.
Get a Receipt. In some cases, some or all of your charitable gifts may be tax-deductible. But depending on the amount and nature of your donation, you may need to document your gift in order to take advantage of that tax deduction. It’s therefore essential to get a written receipt or acknowledgement of your donation any time it exceeds $250.
Consider Donating Appreciated Stock. For some donors, a particularly smart way to help charities they’re interested in is to donate stock that has appreciated in value. Making such a donation not only lets you avoid having to pay taxes on the gain, but you may also be eligible to take a tax deduction for the market value of the stock (not just your original cost basis).
Pick the Right Charity. As you might imagine, not all charities are created equal. Even among charities that have the same goals or look to serve the same people in need, there can be a wide range in how much of your donation actually makes it to those in need. At one end of the spectrum there are some charities that spend less than 10% of their funds on their beneficiaries – the rest goes to administrative and personnel expenses. In contrast, there are charities that spanned well over 90% of their budget on direct program expenses (and less than 10% on administrative and similar costs).
Furthermore, not all “charities” or public interest groups are actually recognized as charitable organizations by the IRS. If the possibility of a tax deduction is an important part of your decision-making process in whether or not to donate, be sure to verify that the target charity is properly recognized by the IRS.