The holidays are a natural time for making — and seeking — charitable donations because people are thinking about ways they can give back and facing a year-end tax deadline.
Caryl Stern, chief executive of the U.S. Fund for UNICEF summed up the “double opportunity” in a recent interview with The Washington Post. “A great number of Americans are compelled to think ‘if we’re going to celebrate and buy gifts for ourselves and our family, might we not think about those who might not be in a position to do that?'” she said. “Secondarily for tax reasons, many people want to get that gift in before the tax calendar runs out.”
Whether you’re giving $10 or $10,000, chances are you want to make sure your donation will make a difference.
Aside from worrying about how efficiently the organization will spend the cash, you want to make the donation in a way that meets the organization’s needs. And even if your main motivation for making a contribution has nothing to do with the tax code, you should take advantage of any tax benefits that may free up more dollars that could be used for a follow-up contribution.
Here are some ways to get the most from your contribution, based on the size of your donation and how often you want to give.
Track even the smallest donations. Even if you don’t donate much or often, you should compile the receipts, statements or other records for the contributions you do make. The paperwork will come in handy if you itemize deductions at tax time and decide you want to deduct your charitable contributions. Only donations to qualifying organizations can be deducted and the Internal Revenue Service needs proof, so cash and change dropped in the collections basket at church won’t count, but donations tracked by the church in a statement would. For donations made through text message, a phone statement reflecting the charge will do.
Write fewer checks. Instead of making a slew of tiny donations when friends and relatives ask for help, it might be better to make larger donations to a smaller group of charities, says Jimmy Lee, chief executive of Wealth Consulting Group, a wealth management firm. “You can make a bigger difference,” he says. If you’ve made all the contributions you can afford for 2014, now may be a good time to start compiling the list for next year’s contributions.
Do your research. Vet organizations through Web sites like Charity Navigator and Guidestar, which track how much organizations spend on administration versus programming, says Sara Montgomery, philanthropy specialist for Wells Fargo Private Bank. Charities are also rated for transparency and accountability. Online tools can also help you estimate how much an organization might be able to accomplish with your donation. Spending time volunteering with an organization can also give you a better idea of the work they do, what their needs are and how your dollars would be spent, Montgomery, says.
Open a donor advised fund. If you want to commit money to a cause now but want to spread the actual donations over time, you might consider setting up a donor advised fund. “You don’t have to decide at that moment or that year where the money is going to go,” says Susan Crown, a financial adviser with UBS Wealth Management Americas.
The accounts typically require a minimum commitment of several thousand dollars and can be funded with more than just cash, including real estate and appreciated stock, Crown says. People who open the funds can say what cause they want to support and offer guidance on the timing, but they may not have complete control over how the money gets spent, depending on which bank they work with. Donors get a tax deduction for the year in which they set up the fund.
Don’t miss the deadline. If you still haven’t gotten around to making the donation, you should act fast — contributions must be made by Dec. 31 to be deductible for the 2014 tax year. Checks must be postmarked by that date and credit card donations must be charged by then, even if the bill isn’t paid until later. And don’t forget, if you can’t afford to give money you can still give of your time.