Wealthinking by Paula Hogan

10 Tips for Smart Charitable Giving

Posted by Paula Hogan on Wed, Feb 06, 2013

describe the imageEver feel like your family's charitable giving policies could be less haphazard and more effective? To get better organized, consider these 10 tips for charitable giving.

  1. Have an overall idea of how much you want to give. If you have a partner, develop a joint point of view. Think in terms of percentages. How much of your income do you want to direct to charitable giving? How much would that be in dollars per paycheck? 
  2. Build charitable giving into your cash flow budgeting. For core recurring gifts, e.g. to your church or alma mater, consider setting up automatic transfers that coincide with receipt of your regular paycheck. For other gifts, set up an automatic transfer to a dedicated savings account for annual gifts. This dedicated account functions as your personal escrow account for charitable giving. It ensures that you have ample cash when it is time to make the year's donations, and it pulls cash out of your discretionary daily checking account that is already committed to a specific goal. 
  3. Be specific about which organizations you want to support. First, think broadly about the causes and charities that matter to you. Next, develop a list of specific organizations that match those personal values. 
  4. Think ahead about solicitations from friends and colleagues. If a friend or colleague asks for a contribution to their favorite charity, what are your boundary conditions for saying yes or no? Which will you politely decline and which will you support? How much budget do you have for these types of solicitations? If the perceived need exceeds your charitable budget, will you draw funds from other parts of your budget? What is your dollar amount for polite, token contributions?
  5. Have a file for mailed solicitations. The circular file works well for charities that you do not feel drawn to support. For mailings from charities that do interest you, have a specific file in place. Tuck these mailings into this "Charity File" and then review the folder on some regular schedule, perhaps quarterly or annually, to decide upon actual donations for the year. This system prevents you from forgetting to give to a particular favored charity or making unintended duplicate gifts. You might be surprised how much this one daily habit can reduce administrative hassle and stress.
  6. Keep a list of actual gifts in your Charity File. The list will help you remember how much you have already given year-to-date. It will also be helpful when you organize your income tax data each spring. These annual gift lists are also an interesting bit of family history. Will you keep them in some permanent place? 
  7. Get the documentation you will need for income tax preparation. To be tax deductible, you need proof for each gift made during the year in the form of specific records required by the IRS. For smaller gifts, a cancelled check or receipt will do. For gifts in excess of $250, you need a contemporaneous letter from the charity that specifies the amount of the gift and that also documents that you did not receive any goods or services in return for the gift. Your accountant needs to see this documentation. Have a specific place in your personal files for these papers! See IRS Publication 526 for further details, including special rules when donating property or services, as well as various income deduction limits applicable to very large gifts.
  8. Decide how you want to be identified in the charity's annual report and other literature. You can give anonymously, individually, as a couple, or as a family or other specific group. Your preference might change from gift to gift. It's interesting to see how personal identity plays out over charitable gifts. When will you use your professional name versus your family name? How might you reflect the character of a gift when it is jointly given from a grandparent and grandchild?
  9. Think inter-generationally. Do you want to engage your children or grandchildren in charitable giving? If charitable giving is an important family value, how are you building it into regular family life? Is it a part of the annual Thanksgiving conversation? Are birthday gifts to a child paired with a donation to a charity the child helps choose? Does your child know that to celebrate your own birthday you make some charitable gifts? Would the use of a donor advised trust be helpful? NOTE: To help the older members of your family, be sure to keep an eye on the solicitations coming to their house in the mail. A sudden increase in mailed solicitations can be a red flag for financial vulnerability and increased risk for financial elder abuse. 
  10. Refresh your personal gift giving policies and decisions regularly. Set a specific time each year for when you take a fresh look at your gift giving policies and strategies. You may find that the amount and ways you choose to give, as well as the causes you care to support, will change as you shift from one life stage to another.

Periodically refreshing charitable gift goals and strategies implies consideration of fundamental personal values. And it also lowers administrative hassle and stress. Getting charitable giving right is an invigorating way to ensure that your financial planning is rooted strongly in your personal values. Financial planning, after all, is not just business, it's personal.

Next Up: Check out next week's blog post for how to make charitable gifts in a tax-efficient manner, followed by how to check out and relate to your charity.

Tags: financial planning, charitable giving