Tips on Charitable Giving

With so many options for your philanthropic dollar, United Way Capital Area wants to assist you in making an informed and educated decision. We can help you plan your giving so that you feel good about your social investments. In the end, you'll know you've been both generous and wise.

To help you make wise giving decisions, consider the following tips on charitable giving.

The Basics

1. Do not give cash. Always make contributions by check and make your check payable to the charity, not to the individual collecting the donation.

2. Keep records. Keep track of your donations (receipts, canceled checks and bank statements) so you can document your charitable giving at tax time. Although the value of your time as a volunteer is not deductible, out-of-pocket expenses (including transportation costs) directly related to your volunteer service to a charity are deductible.

3. Don't be fooled by names. Take a second look at the charity's name. Beware of names that look impressive or that closely resemble the name of a well-known organization.

4. Do your homework. Check out the organization with the local charity registration office (usually a division of the state attorney general's office) and with your Better Business Bureau.

Evaluating a Charity

1. Gather information. From those charities to which you plan regular and/or substantial gifts, request a copy of the latest annual report, a list of board members and the group's latest financial statements. This information should give you a clear idea of what kinds of programs the charity operates, how and where these programs are carried out, who governs the charity, how much of your dollar is spent on the charity's programs and how much is spent on fund-raising and administrative costs.

2. Examine financial statements. The financial statements should show categories of income and expenses so you can clearly see the source of the charity's money and how funds are used. Expenses are generally broken down into three main categories: program services, management and general, and fund raising. Program service costs could include research grants made to scientists, salaries of doctors and nurses providing services, food supplies or public information pamphlets explaining a certain disease. Management and general costs are expenses associated with the day-to-day administration of the charity, such as office supplies, rent, salaries of administrative personnel, etc. Fund-raising costs might include the printing and mailing of appeals, advertising and fees paid to professional fund-raisers. In evaluating the financial statements of the charity, compare the charity's expenses to its income. According to the Council of Better Business Bureaus' Standards, at least half of the charity's total income should be spent on programs and at least half of public contributions should be spent on programs and services. Less than 35 percent of contributions should be spent on fund-raising activites and less than half of the charity's total income should be spent on administrative and fund-raising costs. Top nonprofits nationally maintain administrative costs at about 14 percent.

3. Require accountability. Sound charities should be happy to provide you with information about the results of your contribution. Organizations may provide this information in an annual report, a brochure or a letter. A charity may also have this information on its web site.

Mail Appeals

1. Look for the facts. Mail appeals should clearly identify the charity and describe its programs in clear and specific language. Beware of appeals that bring tears to your eyes but tell you nothing of the charity or what it's doing about the problem it describes so well.

2. Beware of appeals disguised as bills or invoices. It is illegal to mail a bill, invoice or statement of account due that is in fact an appeal for funds, unless it bears a clear and noticeable disclaimer stating that it is an appeal and that you are under no obligation to pay unless you accept the offer. Deceptive invoices are most often aimed at business firms rather than individuals. Contact your local Better Business Bureau for detailed guidelines on how to handle appeals disguised as bills or invoices.

3. Don't feel obligated to pay for unordered merchandise. It is against the law to demand payment for unordered merchandise. If unordered items such as key rings, stamps, greeting cards or pens are enclosed with an appeal letter, remember you are under no obligation to pay for or return the merchandise. If payment is requested, inform your local Better Business Bureau. Organizations that mail unordered merchandise often have high fund-raising costs.

4. Sweepstakes cannot require a contribution. Appeals that include sweepstakes promotions should disclose that you do not have to contribute to be eligible for the prizes offered. To require a contribution would make the sweepstakes a lottery through the mail, and it is illegal to operate a lottery through the mail.

5. Don't worry about returning matching checks. Matching check appeals are not subject to any particular legal requirements. Donors should keep in mind, however, that they do not have to return the checks if they don't contribute. The checks do not have any real value in and of themselves.

6. You can try to stop unwanted direct mail. Many people want to stop the flood of direct mail solicitations. You can write directly to each organization soliciting you and request that your name be deleted from their mailing list. Be sure to send the address label that appears on the outside of the envelope (and/or the return card enclosed with the appeal). Since most charities use nonprofit postal rates to send you fund raising appeals, it does not work to write a note (such as "Delete my name from your mailing list") on the envelope and try to return the letter to the sender. These special postal rates only cover one-way delivery. You can also try to work through the Direct Marketing Association (DMA), which operates a Mail Preference Service that will, on request, delete your name from the mailing lists of certain direct mail marketing firms. When you write to the association (Mail Preference Service, DMA, PO Box 9008, Farmingdale, NY 11735-9008), specify if you wish to have your name removed from commercial mailing lists, nonprofit soliciting organization lists or both. If you do not specify this, DMA will remove your name from the commercial lists only. Also, note that DMA can only remove your name from the mailing lists of commercial firms and nonprofit organizations that subscribe to this service.

Telephone, Door-to-Door And Street Solicitations

1. Ask questions. When you are approached for a contribution of either your time or your money, ask questions and don't give a donation until you're satisfied with the answers. Charities with nothing to hide will encourage your interest. Be wary of their reluctance or inability to answer questions. Ask for the charity's full name and address. Request identification from the solicitor.

2. Inquire about licensing. Ask if the charity is licensed by state and local authorities. Registration or licensing is required by most states and many communities. However, bear in mind that registration in and of itself does not imply that the state or local government endorses the charity.

3. Dismiss pressure tactics. Don't succumb to pressure to give money on the spot or allow a "runner" to pick up a contribution. The charity that needs your money today will welcome it just as much tomorrow. Call your local Better Business Bureau if a fund-raiser uses pressure tactics such as intimidation, threats or repeated and harassing calls or visits.

4. Know what portion goes to the charity. Watch out for statements such as "All proceeds will go to the charity." This can mean that the money left after expenses, such as the cost of written materials and fund-raising efforts, will go to the charity. These expenses can make a big difference, so check carefully. Be sure to ask what the charity's share will be.

Tax Deductions for Charitable Contributions

1. Understand the difference between tax exempt and tax deductible. Tax exempt does not necessarily mean tax deductible. Tax exempt simply means the organization does not have to pay taxes. Tax deductible means the contribuotr can deduct contributions to the organization on his or her federal income tax return. Contributions made to certain tax exempt organizations may be deductible on the contibutor's federal income tax return. While the Internal Revenue Service (IRS) defines more than twenty different categories of tax exempt organizations, contributions to groups in only a few of these categories are tax deductible. You can determine the tax exempt status of an organization either by contacting the local office of the IRS or by asking the organization for a copy of its Letter of Determination (a formal notification an organization receives from the IRS once its tax exempt status has been approved). You can also review IRS Publication 78, Cumulative List of Organizations, which is an annual listing of thousands of organizations to which contributions are deductible as charitable donations. Call the IRS at 1-800-829-1040 for more information.

2. Contributions are deductible for the year in which they are actually paid or delivered. Pledges are not deductible until the year in which they are paid.

3. Volunteer time is not deductible. The value of volunteer time or services to a charitable organization is not deductible. However, out-of-pocket expenses directly related to voluntary service are usually deductible.

4. Only the portion exceeding the value of goods or services is deductible. Contributions for which the donor receives a gift or other types of benefits are deductible only to the extent that the donation exceeds the value of any benefit received by the donor. When you're asked to buy candy, magazines, cards or tickets to an event benefiting a charity, be sure to ask what the charity's share will be. You cannot deduct the full amount paid for any such items, as the IRS considers only the part above the fair market value of the item to be a charitable contribution. For example, if you pay $10 for a box of candy that normally sells for $8, only $2 can be claimed as a charitable donation. Likewise, the purchase price of tickets to a fund-raising dinner or event is not fully deductible. Only the portion of the ticket price above the value of the meal or entertainment can be deducted for income tax purposes.

5. Direct contributions to needy individuals are not deductible. Contributions must be made to qualified organizations in order to be tax deductible.

6. Donations to foreign organizataions are not deductibe. Contributions made directly to foreign organizations are not deductible, except in the case of some Canadian organizations as specified in an agreement with that country. Donations to charities located in Puerto Rico, the Virgin Islands and other U.S. possessions are deductible. Such organizations must meet the requirements for exemption under the income tax laws of the United States.

7. Goods donated to a thrift store are deductible. The fair market value of goods donated to a thrift store is deductible as long as the store is operated by a charity. To determine fair market value, visit a thrift store and check the going rate for comparable items. One cannot take a deduction if the goods are sold on a consignment basis and the original owner gets a percentage of the final sales price.

8. Property donations are deductible. Generally, donated property may be deducted at the fair market value of the property at the time of the contribution. In certain situations, additional details concerning the property's worth may need to be filed with the IRS in order to make a deduction on your federal income tax forms. Also, gifts of appreciated property are subject to special rules.

9. Memebership dues may or may not be deductible. Membership dues that merely cover the cost of privileges or benefits received by the donor are not deductible. However, dues that actually constitute a contribution for which the contributor receives little or no privilege or benefit of monetary value in return are deductible.

10. Raffle tickets are not deductible. The price of participating in a raffle or similar drawing cannot be deducted as a charitable donation.

11. Seek professional advice. With so many rules and regulations, contributors are encouraged to seek professional advice or to consult the IRS when in doubt about the deductibility of contributions.

Information from the Better Business Bureau Wise Giving Alliance.