Donating to charities at year’s end shouldn’t be like tossing dollars into the wind and hoping they’ll stick in beneficial places.
Contributions mailed in or charged to credit cards by Dec. 31 can be deducted for the 2003 tax year for those who itemize. You must also pay what you’ve promised.
“If you made a pledge to a charitable organization earlier in the year, you must honor and pay that pledge before Dec. 3t if you wish to deduct it for this tax year,” said Jackie Perlman, senior tax research analyst with H&R Block in Kansas City, Mo.
Unfortunately, folks who are financially savvy throughout the year frequently make a muddle of their year-end charitable contributions because they’re too rushed during the holiday season.
Donations are made because an organization’s name sounds trustworthy, because an emotional appeal brought a tear to the eye, because a card in the mail made it easy to contribute or because unrelenting solicitors wore down the will to resist.
Those are bad reasons to contribute. If a cause is worthy enough to receive your money, it should give a general breakdown of where it spends it. A rule of thumb is that a charity’s total fundraising costs should not exceed 35 percent of its contributions.
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Microsoft founder Bill Gates and his wife, Melinda, are America’s most generous charitable donors, having given away or pledged an estimated $23 billion. You can bet they know pretty much how each dime of that is being used, since they know accountability even for worthwhile causes is just good personal business.
Rather than give a few bucks here and there you can barely remember, it makes sense to select several key causes you believe in and can follow. Consolidating scattered contributions means more financial impact and makes recordkeeping less cumbersome for you and the charities.
“You can use the dartboard approach or you can do research just as you would with an investment,” said Suzanne Coffman of GuideStar in Williamsburg, Va.
It’s possible to check the legitimacy of more than 1 million non-profit organizations on GuideStar’s Web site at www.guidestar.org. Groups either indicate their IRS registration, or in the case of those that are faith-based, give proof of status as tax-exempt organizations. Those with income above $25,000 file IRS Form 990, which reports income and expenditures. Faith-based non-profits oare not required to.
“Watch out for cases of mistaken identity, since some organizations have similar names quite innocently while others intentionally wish to mislead donors,” advised Bennett Weiner, chief operating officer of the Better Business Bureau’s Wise Giving Alliance in Arlington, Va. “Also, don’t give in to excessive fundraising pressure, no matter what the circumstances, since accountable charities will welcome your money just as much next month as now.”
The BBB’s Wise Giving Alliance Web site, www.give.org, evaluates 500 large national charities using a comprehensive set of 20 standards on governance, financials, fundraising practices and other aspects of operations.
Like Bill and Melinda Gates, you can also set up your own charitable foundation. But rather requiring millions, it can be set up with $5,000 or $10,000 that you’d eventually like to hand over to a worthy cause.
The vehicle is a donor-advised fund offered by a major fund family. You get a deduction upfront and the account’s value is expected to increase over time as the portfolio is managed. It grows tax-free and contributions to the fund are tax deductible.
Here are some of the lower-minimum, donor-advised mutual funds:
– Calvert Giving Fund, 800-248-0337; $5,000 minimum initial investment; $500 minimum subsequent investment.
– Fidelity Charitable Gift Fund, 800-682-4438; $10,000 minimum; $1,000 subsequent investment.
– T. Rowe Price Program for Charitable Giving, 800-564-1597; $10,000 minimum; $500 subsequent investment.
– Schwab Fund for Charitable Giving, 800-746-6216; $10,000 minimum; $500 subsequent investment.
– Eaton Vance U.S. Charitable Gift Trust, 800-225-6265, ext. 7025; $10,000 minimum; $1,000 subsequent investment.
Remember that you must always have substantiation for the IRS. For cash donations less than $250, a cancelled check, receipt or reliable written record is required. For cash of $250 or more, an acknowledgement letter from the organization is needed. IRS Publication 526 on Charitable Contributions (www.irs.gov/app/scripts/retriever.jsp) includes rules on non-cash giving as well.