Be Smart About Charitable Giving
Andrew Leckey

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Investing - Be Smart About Charitable Giving

Charitable giving didn't dry up with recession, but it did become more selective.

You aren't seeing donation pledges and checks tossed around casually in 2009. Instead, corporations and individuals alike are deciding what they care about most and directing their giving strategy accordingly.

That prudent philosophy has prompted nonprofit organizations to hold their friends close.

"We're seeing board members and major donors being asked to contribute more this year, the general thought being that the more connected that donors are, the more they'll give," said Nancy Raybin, managing partner at Raybin Associates, a New York-based fundraising consulting firm. "Meanwhile, it is generally believed that people further away from an organization may be less inclined to maintain their gifts."

Eighty-one percent of corporate donors surveyed nationally by the LBG Research Institute said they're donating more strategically in 2009. A 3 percent to 5 percent decrease in corporate and foundation giving this year is likely, according to analysis of the data.

"Environment, basic needs (food, clothing and shelter) and education were given by corporations as top priorities," said Donna Devaul, executive director for LBG Research in Stamford, Conn., which tracks corporate charitable giving. "But it looks like arts and culture will be hit hard."

Considering how financial markets tanked in 2008, it is heartening that U.S. charitable giving by individuals and corporations decreased just 2 percent, to $308 billion, from the prior year, according to the annual report of the Giving USA Foundation.

Individuals, like corporations, must examine how well a cause or organization still fits their priorities and whether its results meet their approval. If an individual does have specific favored charities, those charities probably need financial help more now than they have in many years.

"If you're going to do meaningful charitable giving, it is important that you develop a plan for it," said Marilyn Capelli Dimitroff, president of Capelli Financial Services in Bloomfield Hills, Mich. "That means deciding where to give, knowing the tax considerations, keeping records and investing properly."

Individuals should check out any charity they are considering with the Better Business Bureau's Wise Giving Alliance on its site, www.give.org, and also consult the resources on the American Institute of Philanthropy's site, www.charitywatch.org.

Understand tax terminology no matter what the type of donation.

Tax-exempt means the organization doesn't have to pay taxes, while tax-deductible means you can deduct your contribution on your federal income tax return. Even if an organization is tax-exempt, your contribution might not be fully tax-deductible.

"If you're buying a table at a dinner for a charity, that's not 100 percent tax-deductible because there's a value to the food you're receiving," Capelli Dimitroff said. "Obtain a letter from that charity that documents how much was actually deductible."

Learn the basics, such as these on non-cash contributions from Capelli Dimitroff:

-- Get a receipt from the charity and keep reliable written records. Canceled checks can be used as a receipt at tax time.

-- For contributions valued at $250 or more, you must obtain and keep a written acknowledgement from the charity that follows IRS guidelines.

-- The online guide to general values on the Salvation Army site, www.salvationarmyusa.org, is a good resource for assessing appliances, clothing, furniture, household goods and miscellaneous items.

-- Take photos of what you're donating. Lay out everything, take a quick photo with a digital camera and store the file.

Donations should be a component of your overall investment and tax strategy.

"One very convenient, straightforward way to donate on a regular basis is through donor-advised funds," said Capelli Dimitroff. "You open a charitable account in your name or your family's name and can donate securities to it."

A donor-advised fund (also known as a charitable gift fund or charitable gift trust) lets a donor make a contribution to a special fund and take a tax deduction. At some point, the donor advises the fund of a nonprofit organization or organizations where that money is to be directed. This lets the donor manage charitable giving like a foundation without the expenses typically required in setting up a foundation.

The money is invested for the best return while the donor decides where to donate it. The contribution to the fund is tax-deductible as a charitable contribution in full in the year the contribution is made. There's no need to wait until money is actually paid out to a charity, and contributions are also permanently exempted from your taxable estate.

By contributing qualified appreciated stock to a donor-advised fund, you can claim full market value of the stock as a charitable contribution, avoiding any capital gains on the contribution. That's why a large portion of money coming into these funds arrives as qualified appreciated stock and mutual funds.

Numerous investment firms, such as Fidelity, Vanguard, Charles Schwab, T. Rowe Price and the National Philanthropic Trust, compete vigorously for donor-advised money. There is a wide range of minimum initial investment requirements.

One example is Fidelity Charitable Gift Fund, which since 1991 has been the vehicle for more than 50,000 donors to make more than $9 billion in grants to 130,000 nonprofit organizations. It has a $5,000 initial minimum and, as might be expected, offers an array of Fidelity fund choices.