Your Practical Path To Effective Charitable Donations

For more than two centuries, Americans have dedicated a share of their resources to charity. Despite the Recession, we continue to contribute more than $250 billion each year, with more than 89 percent of American households selflessly making donations. Many of us start giving because of tax benefits but discover the personal satisfaction only philanthropy can provide. As 2010 draws to a close, thousands of us will make charitable donations, both in celebration of the season and as tax deductions.

The holiday season often provides non-profit organizations with half their annual donations. To be effective, however, philanthropy must be practiced effectively. It's important your hard-earned dollars and time go towards helping those truly in need.

Read on for ways to ensure your charitable donations meet not only your philanthropic goals, but also are integrated into your financial and personal goals.

1. Selecting a Charity
What matters to you? Is it horse rescue, local theater or the Red Cross? Do you prefer to dedicate your philanthropic efforts to big or small charities? Local, national or international organizations? Whatever direction you decide to pursue, it should be a mission that shares your values and is doing valuable work.

2. Check The Organization's Credentials
It takes very little time to create a website, rent a post-office box and set up a PayPal or credit card account. That doesn't mean a charity is legitimate. Several watchdog groups monitor the fiscal health and effectiveness of non-profit organizations, including Charity Navigator and GuideStar. The National Philanthropic Trust also provides excellent information on planned giving. Start with these sites, run Google searches on prospective recipients, and talk to other donors. If you plan a large gift, interview a representative from the organization about their mission, financial situation and programs. Look for a "paper trail" detailing the non-profit's financial and programmatic history.

Visit the IRS website to verify the organization is eligible to receive tax-deductible charitable contributions. Not all non-profits qualify, so be sure and ask.

3. Look for Accessible Information
A well-run organization should happily share their success stories with the public. Beware if the charity is unable or unwilling to share its mission statement, programmatic updates, board-meeting minutes, and annual report. Not all organizations will have formal reporting methods for this information, but they should be able to provide you with the rough outlines upon request.

4. Where to Give
Local giving helps you track your philanthropy more closely and personally. It also allows you to become personally involved. During the recession, many of the smaller non-profits have been neglected for major charities and could use your attention.

Giving over a wider geographical area, however, gives you more outlets for your philanthropy and allows you to accommodate several different interests.

5. Newer vs. Older Charities
Younger organizations represent more risk, but they also have the potential for truly fresh approaches to problems. Your gift may be a big fish in a small pond, leading the way for other donors. It's also easier to create a personal relationship with a new charity.

Older, established non-profits can show a track record of successes, so you know your donation will be used effectively. On the other hand, your money may end up targeted more towards overhead expenses than actual programs.

In either case, make sure you perform due diligence and become comfortable with the executive director or president. They should provide leadership and skills that will allow the organization to effectively pursue its mission.

6. Ask What They Need
Talk with the organization's representatives about what they need most. You may wish to target your donation to a specific program or to the general fund. For example, capital support allows a non-profit to maintain its current facilities or build new ones. An endowment will provide the charity with future resources.

7. Giving Cash
Generally, cash is fully deductible with limitations depending on the recipient. The deduction is limited to 30 percent or 50 percent of your Adjusted Gross Income (AGI) and may be carried forward for five years.

8. Giving Securities
Securities are generally deductible at full market value and appreciated assets are not subject to capital gains taxes. The deduction is limited to 20 percent or 30 percent of your AGI and may be carried forward for five years.

9. Giving Tangible Personal Property
Virtually any asset may be donated, including clothing dropped off at the Salvation Army to a car you donated to National Public Radio. It's generally fully deductible at market value and appreciated assets donated to charity aren't subject to capital gains taxes.

The deduction limitation is generally 20 percent to 30 percent of your AGI and may be carried forward for five years. If the asset isn't related to the charity's mission, your deduction is limited to the lessor of cost basis or fair market value.

10. Giving Time and Talent
You can't deduct the value of your donated time but you can deduct expenses related to volunteering, such as mileage, fares, tolls, etc. On the other hand, volunteering your time gives you an opportunity to see an organization first hand and decide if you'd like to become monetarily involved.

11. Follow Up On Your Donation
Continue to seek information about the performance of the organizations you support. Financial stability is one measure, but you may also want to find out about their services. Are they making forward progress or is the money disappearing into overhead? If the organization doesn't provide such information, this may be a sign of its ineffectiveness or its lack of follow-through.

Photo by j-lai