Close-Up: Charitable Giving

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n.

Charitable Giving: The giving or performing of benevolent actions of any sort for the needy with no expectation of material reward.

TheComplete Book of Money

Remember the old adage, you have to spendmoney to make it? In his book (HarperCollins;2000), Stephen Pollan builds on thistheme, noting that to keep good things, you need togive them away. Pollan is referring to charitable giving,and suggests that to remain financially secure,you need to give money away.

Possible problems:

When it comes to charitable giving, Americans arenot exactly Ebenezer Scrooge. According to data fromthe IRS, Americans took tax deductions for $146 billionin gifts to charities in 2000. Obviously, giving is not aproblem. Americans need to exercisecaution when it comes to how they make their donationsand to whom they make them. The philanthropicworld, Pollan writes, is not free from scams and cons.Therefore, it's important to make your giving as efficientand effective as everything else you do with your money.

Sensible Philanthropy

Most charitable requests are made with an emotionalappeal. It's the old belief that if you tug on theheartstrings, the purse strings will follow. However,before you feel emotionally compelled to give to acharity, ask yourself what you really know about thecharity. For example, some charities, while notcrooked, are very inefficient. Pollan points out thatcertain charities retain as much as 75% of the contributionsthey receive to cover administrative costs orexpensive perks for the charities' officers. Of course,that's not where you want your money to go.Therefore, learn as much about the charity as you can.

Other charities are completely fraudulent. MetLifenotes that there are some common red flags to be awareof when it comes to solicitations. For example, appealsarriving in the mail should not be disguised as invoicesmarked "urgent." Additionally, the law states that anygifts that come with an appeal (eg, stamps or addresslabels) are yours to keep. Don't be compelled to make adonation out of guilt for keeping small gifts.

Pollan also suggests that contributors avoid havingdonations charged to credit cards. That's because itcould be a scam to obtain your card number. And nevermake cash donations. Even if the charity is legitimate,the money might never make it out of the solicitor'spocket. Instead, write a check and make it payable tothe full name of the organization.

Donation Distinctions

New York Times

Charitable giving is charitable giving, right? Well,according to the nonprofit philanthropic research organizationthe New Tithing Group (www.newtithing.org),it's not that simple. Researchers at the organizationhave developed an Internet guide, PrudentPal, whichhelps American tax filers budget each year for charitablegiving. The impetus for the guide, according to arecent article in the , is that high incomeearners do not reap all of the tax savings theycould through their charitable donations.

Bottom line:

Congress provides a greater tax break to individualswho donate appreciated assets (eg, stock thathas increased in value) than to those who give cash.Using data from the IRS, the New Tithing Grouppoints out that in 2000, individuals with an annualincome of $1 million or more averaged total contributionsof $157,244, of which $51,669 was given in cash.If appreciated assets had been donated instead of cash,the additional tax savings would have amounted to$2893. Individuals would be able todonate more, and do it more tax-efficiently, withoutchanging their financial positions.

PrudentPal allows users to conduct an examinationof their income and assets, and then measurestheir capacity to give. For example, after you type inyour income, investment assets, and tax filing status,the calculator determines your after-tax cost of giving.Rather than reacting to solicitations, the tool enablesindividuals to proactively budget for charitable donationseach year. If you're going to make charitablecontributions, you might as well make them in a mannerthat is most beneficial.

Pop Quiz

1) How much in deductions did Americans receive forcharitable gift giving in 2000?

1. $144 billion
2. $146 billion
3. $148 billion
4. Way too much

2) Some charities retain 75% of the contributions theyreceive to cover the cost of

1. Donuts and coffee every morning
2. Executive summer vacations
3. Administrative expenses
4. A house in the Hamptons

3) Small gifts received with charitable requests should be

1. Kept
2. Sent back
3. Destroyed
4. Sold for a profit

4) PrudentPal is a new online tool for

1. Finding frugal friends
2. Planning charitable donations
3. Bargain shopping
4. Hiring domestic help

5) The governing body that determines whether donationsto a particular organization are deductible is the

1. IRS
2. CIA
3. FBI
4. ESPN

Answers: 1) b; 2) c; 3) a; 4) b; 5) a.