Strategy for charitable giving

By Linda Stern* | Reuters |

Charitable giving tends to peak in the last two months of the year as donors are doubly inspired by the holiday spirit and the prospects of boosting their year-end tax-deductible spending. But they often diminish the power of those donations by not carefully targeting their gifts or by making them in a less tax-advantaged way.

That's not good, especially this year when charities really need the help.

Nonprofits are bracing for a grim season because job and stock market losses have hurt their donors. Major nonprofits are expecting donations to drop by 9 percent this year, after falling almost 6 percent last year, according to the Chronicle of Philanthropy. Meanwhile the charities are being squeezed from both directions: They have more clients needing more help, so it becomes even more important that donors act smart about their giving.

"Many folks are trying to do more with less," says Lisa Philp, head of Philanthropic Services at JPMorgan's Private Bank in New York. "We spend a lot of time helping people doing triage and thinking through their gifts."

Here's how to do the right thing, in the right way.

-- Concentrate your gifts on fewer groups. Sending $20 here and $20 there dilutes the power of your gifts, and your influence on how they are used. And it guarantees that you'll be on many, many mailing lists going forward. Instead, take the time to think of the two or three causes most dear to your heart. Look at Guidestar.org, CharityNavigator.org or the Better Business Bureau (www.bbb.org/us/charity/) to find groups that fit best. Write bigger checks there.

-- Think large and small. Big national charities do offer economies of scale. For example, the Better Business Bureau notes that Feeding America, a large national hunger-relief organization, says it can produce up to $30 in food for every $1 that gets donated, because of connections and economies not available to the public. On the other hand, you can maximize your impact and involvement by donating funds to a small, local group that is aimed at the cause you care about.

-- Aim for governance. Traditionally, donors have tried to give to charities that spend the least amount of money running themselves, giving out the highest percentage of cash in direct aid. But Philp says that smaller charities in particular can benefit most from gifts aimed at helping the charity build capacity. Making a grant specifically earmarked toward having the charity board attend classes on management or fundraising, for example, could give the charity a big boost. If you're going to invest in a big way like this in a small group, it's a good idea to ask the group for a business plan or a strategic plan for how it will spend your money, says Philp.

-- Give stocks and mutual fund shares. If you have a gain in a stock or other security, you can give it to a charity and maximize its value. You won't have to pay taxes on the gain (as you would if you sold the stock and donated the proceeds), and neither will the nonprofit charity. You'll get a tax deduction for the full value of the security.

There's another strategy that bears mentioning: This year, many mutual funds will log big capital gains that they will hand out to shareholders as taxable distributions. If you hand over shares of the fund to a charity, you may avoid being taxed on those gains. You would have to make the gift before the fund makes its annual distribution.

-- Retirees get a special deal, too. If you are over 70 and don't itemize deductions, you can transfer money directly from your IRA to the charity of your choice and you will not be taxed on the IRA withdrawal. This is a special tax break that expires after this year, so if you have a sizable IRA and were considering making a big gift in the future, this would be a good time to do that.

-- Car donors have to take an extra step. Giving away your clunker doesn't get you a deduction for the Kelly Blue Book value of your car unless you give it to an organization that uses it as a car. Other organizations may hire someone to sell the car for you, and you would only get a tax deduction for the amount of cash the charity actually pockets from its sale. So if you have a usable car that you would like to donate, give it to a group that will offer it to a needy family that needs a car or will use it directly in some other way.

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(editing by Gunna Dickson)
Picture source: Reuters
* -- Linda Stern is a freelance writer. Any opinions in the column are hers. You can follow Linda Stern's financial notes on Twitter at www.twitter.com/lindastern --