If you're like most Americans, you donate money to charity in a rather haphazard way. You'll give a couple of bucks to the homeless man on the street, and maybe a bit more to the charity that solicits you by phone. But you don't think deeply about your charitable giving, nor do you plan it out in advance. And usually, ++ you feel a little resentful or put-upon when someone asks you to give.
Meanwhile, the homeless man doesn't get any lasting benefit from your money. And the charity that called you can't do much with a small donation. In essence, you're making a bad investment.
Millions of people who otherwise display financial savvy seem to falter when it comes to charitable giving. But there's no reason to be less thoughtful about charitable donations than any other investment -- particularly if you want your money to spark social change.
The most important steps in effective charitable giving are deciding how much you want to give annually, and including that amount in your household budget.
Determining how much to give is a highly personal issue. The religious concept of tithing, or giving 10 percent of your gross income, is familiar to many people. In a program called "Strive for Five," Partners For Giving, a local coalition formed to encourage philanthropy, advocates that people give 5 percent of their gross income and do five hours of volunteer work each week.
"When we did a survey of people in Central Maryland, most said they thought 5 percent of their income and five hours a week was fair," said Andrea Krupp, executive director of Partners for Giving. Currently, the average Central Maryland household gives only 1.5 percent of its income.
Whatever amount you settle on giving, chances are it will be greater than if you hadn't planned it beforehand. As a result, your philanthropy will do more good in the community.
Including the amount in your annual budget gives you greater control over your philanthropy. At the beginning of the year, you can allocate the money among organizations of your choice, rather than being thrown into a state of guilt or anger every time you're asked for money.
"When donors complain about how deluged they are, they haven't structured their giving enough to be able to say 'No' without guilt," Ms. Krupp said.
Lucy Steinitz and Bernd Kiekebusch of Columbia find that planned giving can limit phone pressure. Every year, Dr. Steinitz, a 39-year-old social worker, and Mr. Kiekebusch, a 45-year-old database designer, calculate 10 percent of their gross household income and select charities. Environmental, Jewish and child welfare causes are top priorities for their donations, which total more than $10,000 annually.
"When I get telephone solicitations, I explain our process, and I say that if they send us something in the mail, we'd be glad to consider their organization for the following year. That usually ends it," said Dr. Steinitz, executive director of Jewish Family Services of Baltimore.
Choosing a charity
When deciding where to give your money, consider which issues are most important to you. With most organizations actively soliciting funds by mail and by phone, it's usually not too difficult to find targets for your money. The greater challenge is finding out whether the charity is a well-run organization.
To do this, ask for a copy of the charity's annual report. Review how its revenue is divided between overhead and service delivery. At least 75 percent should be allocated to service delivery, according to Ms. Krupp. You can also call the Maryland secretary of state's office at (800) 825-4510 to obtain this information about many local charities.
You'll also want to check that the organization qualifies as a charity under federal regulations before you donate, so that you'll be able to take an income tax deduction for your contributions.
Be wary of organizations that solicit you by phone. Before giving money, ask the caller to send you information.
"You can get calls from 27 different Fraternal Orders of Police, and there are a lot of scams," said Stanley Krosin, a partner with the Baltimore accounting firm of Grant Thornton. On the whole, however, most non-profit organizations are legitimate.
Volunteering for an organization can be a good method of learning about its effectiveness, Ms. Krupp said.
Terrie and Ian Caisley, a Baltimore couple who tithe, have close links to most of the organizations that receive their charity. Mrs. Caisley, a registered nurse and the daughter of a missionary who belongs to the Africa Evangelical Fellowship, saw the work being done by that organization to found schools and hospitals as a child growing up in Southern Africa. Mr. Caisley, a doctor who works at the Highlandtown Health Center, had heard about Help-A-Child Inc., a Dutch organization that cares for needy children in Africa and India, from close friends.
"We knew each of these would do the right thing with the money, even if we don't know everything they'redoing," Mrs. Caisley said.
Techniques for giving
Once you've decided where to give, consider doubling the impact of your gift by asking your employer about a matching gift program. Many corporations take part in such programs; for example, about 10 percent of employers participating in United Way's workplace campaign have matching gift programs.
If giving a large amount at once is a problem, ask the charity about installment plans. For instance, Associated Black Charities Inc. of Baltimore is one of many organizations that will bill you on a monthly or quarterly basis, according to Donna Stanley, executive director.
Save all your canceled checks and receipts for use at tax time. Also, keep ticket stubs from charitable events such as dinners and auctions -- but be aware that you can deduct only the portion of the ticket's cost that is going to charity, not the entire cost. (For example, if you buy a $100 ticket to an event, and the meal itself is worth $25, you can only deduct $75.) Remember that deductions for charitable contributions are restricted to taxpayers who itemize.
As long as you can prove that the trip did not have a significant element of personal pleasure, recreation or vacation, you can deduct your mileage and other travel expenses for trips taken on the behalf of charitable organizations.
If you're giving away property worth more than $500 to a charity,
you'll have to fill out an Internal Revenue Service Form 8283, which lists information such as the name of the donor, the name of the recipient and the estimated market value of the property. For property worth more than $5,000, an appraisal must be performed and attached to the form, Angelo C. Poletis, an accountant with Rowles & Co. of Towson, said.
Giving away appreciated property means that you may be subject to the alternative minimum tax. This tax is designed to collect a fair share from taxpayers who are trying to reduce their tax bill substantially through donations. It involves calculating your taxes twice and paying whichever sum is highest.
"Usually, people who have to worry about this are those whose incomes are relatively high," said Mr. Poletis.
Another option for giving is to form a mini-foundation with friends whose values you share, said Ms. Krupp. After donating 1 percent or 2 percent of their gross annual income to a general pool, the members decide where to funnel the money. This method often provides you with greater clout than giving on your own.
Some people choose to leave money or property to a charity upon their deaths. Whatever you bequeath to a charity in your will is exempt from estate taxes. You can give the money or property at one time, or you can set up a trust.
If you want to leave money to a charity, but you're worried about providing for your Aunt Nell, you can set up a "charitable remainder trust." In that arrangement, some money in the trust is distributed to your aunt for a set period of time. Then, the remainder of the money goes to a designated charity.
The "charitable lead trust" also divides money between charities and other beneficiaries, but it works the opposite way. Some of the money in the trust goes to a charity for a set period of time; then, the remainder goes to a beneficiary.
Alyssa Gabbay is a free-lance writer who often covers busines issues for The Sun.