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Dying to aid charities? Don’t wait that long

Updated: May 3, 2013 12:14PM

Originally published: September 18, 2006

When you’re devoting your attention to making money, saving money, and investing for the future, it’s hard to think seriously about giving money away. Yet individual Americans gave away nearly $188 billion in 2004, according to the Center on Philanthropy at Indiana University.

And now, we’re officially starting the season of giving. In coming weeks, charities will send out reminders of their worthiness, along with an envelope for your contribution. According to the IRS, there are more than 1.8 million tax-exempt entities in the U.S., and this number is constantly growing. It’s up to you to decide which organizations deserve your generosity. It’s important that you know and follow the appropriate tax rules if you want your contribution to be tax deductible.

Checking up on charitiesIt’s easy to check on the business practices of a charity to make sure your money is going toward the cause, instead of toward fund-raising expenses or salaries. Web sites such as and will enable you to research a charity by name or cause, as well as view and compare their annual IRS filings under Form 78, detailing their expenses and costs. But finding a reputable charity is only the first step in the giving process.

Well-known Portland, Ore., financial planner and author Judith McGee has combined her passion for both planning and giving into something she calls “strategic philanthropy.” McGee says the challenge is to structure a financial plan that allows lifetime giving as well as leaving a tangible legacy. She emphasizes that this is “a mindset, more than a pocketbook” issue.

Once you feel confident about your financial plan for the future, you can “afford” to give even small amounts on a regular basis.

If you really want to structure your giving, you can create your own foundation through donor-advised funds, such as those offered by Vanguard and Fidelity among others. These funds create an immediate tax deduction for your contribution. Then the money can grow over a period of years in a selection of special mutual funds, until you give instructions for distribution to a registered 501(c)(3) charity.

If your investments prosper, your foundation could grow, even as you direct disbursements to qualified charities. Families can set up these accounts, encouraging children to make annual, deductible contributions -- and then agree on future distributions to worthy and official charitable causes.

There is one drawback: while others might contribute to your foundation and take a deduction, the money can be distributed only to 50l(c)(3) charities, not to an individual.

A significant amount of contributions are made in cash, whether dropping money into the collection plate or the Salvation Army kettle. But the new Pension Protection Act of 2006 tightened the rules. Now, if you want to deduct a cash contribution of any amount, you must have a written confirmation that the charity actually received that cash amount from you.

For charitable contributions of less than $250, you must keep a cancelled check, credit-card receipt or electronic funds transfer receipt. Or you must have a letter from the charity acknowledging receipt of the contribution and its date and amount.

For charitable contributions of $250 or more, you’ll also need a written receipt from the charity that substantiates the amount of cash contributed and a description (but not the value) of any property other than cash contributed.

Get a receiptIf you donate property, such as clothing, valued at less than $250, you must keep a receipt from the charitable organization showing the charity’s name, contribution date, physical location of the contribution and a detailed description of the property (but not its value).

A final thought: Although the IRS does not allow you to deduct the value of services or time you give to a charity, McGee points out that these non-monetary contributions also express our need for relevance and affect the communities in which we live. Says McGee, “Money or stocks have no use or energy, until you send them on a mission. Do that while you’re alive -- or one day your heirs will spend it, or the government will do it for you!” And that’s The Savage Truth.

Terry Savage is a registered investment adviser.

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