How To Donate Like A Genius

by Neal Frankle, CFP ®

Most people I know are givers. But there is a right way and a wrong way to donate to charities.  While you are helping others you should also take a few extra steps to get the most benefit for yourself at the same time.  What’s wrong with that?  Nothing.

1. First things first.

When it comes to recognized charities, do a little snooping around to make sure your money is going where it is most needed. Find out:

  • How much is going towards administration?
  • How long has the charity been around?
  • What is the IRS status of the organization?

The charity should provide a statement detailing how the organization uses the funds and how much of the money goes towards salaries and other administrative costs. Read the spending plan and see if it’s clear, detailed and makes sense.

Check out your charity with and the Charity Fraud section on the Federal Trade Commission.

The Internet Nonprofit Center gives plenty of tips on how to identify responsible charities. And the American Institute of Philanthropy provides more tips and information that you’ll find useful.  Take this step to be sure that your support is well placed.  Remember, the only way to get a tax break is if you make contributions to qualified organizations.

Neal’s Notes:  You don’t have to give money in order to help others.  Here’s an idea that costs you nothing and very little time yet might have a huge impact on others – and can help enrich your life tremendously.

2.  Tax Benefits

There are two smart ways to use the tax code to your benefit when you make charitable contributions.  If you have appreciated assets like stocks that have gone up in value, donate those stocks rather than cash them in and send  a check.  Let’s illustrate by way of example.  Assume you bought a stock for $5000 and now it’s worth $7500.  As it happens, you were planning on contributing $7500 this year and you think about your options.

Turbo Tax BOXIf you sell the stock you’ll have to pay capital gains on the appreciation so your gift will be diminished – and so will your write-off. But if you turn over the stock instead you’ll get to write-off the entire $7500.  Sweet.

Another tax smart way to make a charitable contribution is available to you if you are subject to required minimum distributions from retirement accounts.  If that’s the case, you can have the custodian send the RMD  (or any part thereof) directly to the charity instead of sending the money to you.  This way, you don’t have to pay tax on the distribution.  You aren’t any better off per se but if you make your contribution this way more money goes to the charity and less goes to the government.  In my mind, that’s a win-win.

3.  Accountingcharitable donation

Make sure you keep good records.  There is a great free program you can use to track your contributions called “It’s Deductible” and I strongly recommend you use it.  This will help you stay organized and get credit for every dollar or asset you donate.  Ultimately, you’ll only get a tax deduction if you file a 1040 and itemize deductions.  If the donation is for property or goods that are worth $250 or more, you must have a receipt.  If you contribute more than $500 for the year in non-cash items, you have to add Form 8263 to your tax return.

Donating to worthy causes is all the reward you could ask for.  But there is nothing wrong with taking a few extra steps to get the most you can out of your benevolence at the same time.

Are you going to make a charitable contribution this year?  How?




Subscribe & Get Your Free E-Book and E-Course as My Gift to You!

Investing Your Money Made SimpleOnce a week you'll get unique tips to make smarter money decisions about your investments, retirement, taxes, and career. You'll also get encouragement and ideas to help you get out of debt, earn more money, and generally stop worrying about your money.

Neal Frankle is a Certified Financial Planner™ with over 25 years experience. Subscribe today and tap into this wonderful, free resource!

Become a Fan! Follow @NealFrankle

{ 2 comments… read them below or add one }

Lori Klein November 29, 2012 at 4:47 AM

Great ideas–after 24 years of marriage we have a fairly set pattern of giving and who the dollars go to. The most unfortunate thing is that some of the organizations do not stop when you do give to an annual appeal, and send endless solicitations.

Great thought about the fact that giving direct to families and groups that are not registered is worth it simply because you know the immediate effect and where the money goes. It doesn’t all have to be about a tax deduction when so many are in need.


Neal Frankle November 29, 2012 at 7:54 AM

Hey Lori. Thanks…..I didn’t know you were a reader. I’m honored!


Leave a Comment

Previous post:

Next post: