Factoring It Into Financial Planning
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Before making any contribution, prospective donors should assess how that gift fits into their overall financial planning and carefully determine how much they can afford to give.
"A lot of people are making gifts when they should be saving for retirement, and there are others who have more than enough to give but are still in a hoarding-mode mentality," said Mary Malgoire, founder and head of the Family Firm, a financial planning firm in Bethesda.
She and others say people need to make charity giving a part of their annual budget to be most effective. While many people pledge money throughout the year, most actually write the check between Thanksgiving and New Year's Eve, as they focus on resolving their taxes by year's end.
Donors who intend to take advantage of tax breaks for a gift should verify that the charity has federal tax-exempt status. A recent change in the tax law requires donors to substantiate cash gifts with canceled checks or bank records in order to claim a deduction. Anyone donating household goods or clothing must make sure the items are in "good" condition in order to claim them at tax time.
Some people, such as Daniel and Karen Mayers, use what's called a donor-advised fund for their giving, which they set up through the Community Foundation for the National Capital Region. Daniel Mayers, a retired attorney, said donor-advised funds are great for high-income earners during their peak earning years because they can take the tax deduction when they set up the fund, but they don't have to donate everything right away. They can wait until retirement to direct where the money should go. Using their donor-advised fund, the Mayerses have given Higher Achievement a gift of $2,000 in a recent year, $1,000 in another.
Another key tax-law change lets anyone who is at least 70 1/2 years old make a tax-free distribution from an IRA to a charity of up to $100,000 in 2006 and again in 2007. But the money has to go directly to the charity -- it cannot pass through the donor's hands -- and it has to go to a public charity, not a private foundation or a donor-advised fund. But a person could give it to a community foundation as an unrestricted gift to be distributed locally.
Last, before mailing in that check, donors should check whether their company sponsors a matching-gift program and, if so, what its rules are. That could double your giving.
