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Common Methods Of Charitable Giving

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Gifts are commonly made through the following methods:

  • Cash donations.
  • Purchases from a non-profit or a merchant.
    • Non-profits: 
      • Most major disease-related organizations have their own catalogs on their websites. For example, with respect to HIV/AIDS, Broadway Cares/Equity Fights AIDS has a store at www.bcefa.org offsite link.
      • A tax deduction is limited to the amount by which what you pay exceeds the fair market value of goods or services.
    • Retailers
      • Many retailers give a percentage of each sale to charity. The percentage can be substantial - for example, ranging from 12.5% of the amount you spend to 20%. 
      • As a general matter, the retailer gets the deduction for the charitable donation - not you.
      • Before buying from a retailer for this reason, check to see how much the retailer takes off the top as a fee. (The "merchant's fee"). Some retailer give 100% of the merchant's fee.
      • You can locate local retailers who have this kind of program by paying attention to local ads on television or in your local newspaper. You can locate web retailers who engage in this practice through such sites as:www.4charity.com offsite linkwww.charitymall.com offsite linkwww.charitableway.com offsite linkwww.igive.com offsite link,www.greatergood.com offsite link
  • Credit cards
    • You can  donate money by shopping or through credit cards which give a percentage to charity ("affinity credit cards"), 
  • Mobile Phone Text Donations
    • More charities are asking for donations by means of cell-phone text donations.
    • Before you give to charity this way, find out:
      • How much of the contribution goes to third parties who process the transaction
      • How much the charity gets
      • How long it takes the charity to receive the cash
  • Donating clothes, furniture and various other items or real property
    • In general, if you give property to a charity, the amount of the income tax charitable deduction is the fair market value of the property at the time of the gift. It doesn't matter what the property cost you.
    • As charities like to point out, if the value of your property exceeds what it cost you, you have the advantage of making the gift without paying a tax on the increase. For example, if you donate a painting that you bought for $1,000 which is now worth $10,000, you get a deduction for the $10,000 value. You do not pay tax on the difference between the $1,000 you paid for it and the $10,000 it's worth.
    • To find fair market value: Check local thrift shops, classified ads, or go on line to such sites as Turbo Tax, http://turbotax.intuit.com/personal-taxes/itsdeductible/index.jsp or auction sites such as www.eBay.com. Keep a copy of what you find with your tax records.
    • If you are considering donating real property such as a home, keep in mind that an appraisal is needed for certain deductions of real property.
    • If you are considering donating personal property(incuding donation of a vehicle), click here. 
    • To find a local organization that will pick up items from you home, see: www.DonationTown.org offsite link
    • NOTE: If you have a car or other vehicle you wish to donate, donate it directly to the charitable organization. The pitches you hear on television about auto donation services rarely pass much on to the charity. Instead, many of them mostly benefit the towing company sponsoring the program.
  • Donations Of Life Insurance
    • Proceeds from a life insurance policy can be donated to charity by:
      • Making the charity the owner and/or beneficiary of a policy.
      • Assigning an interest in the proceeds to the charity.
  • Annuities
    • With an annuity, you can receive a deduction and a payout for a term you specify (including life). The payout is usually based on life expectancy.
    • The payments to you can start immediately or be delayed.
    • You don't have to have a lot of money to give an annuity. For example, the Red Cross permits gifts annuities starting at $5,000.
    • Gift annuities are generally purchased directly from the charity, not an insurance company so there are no sales commissions.  If you purchase an annuity on your own instead of through the charity, you may be able to get a better deal.
  • A giving circle
    • A "giving circle" is a group of people who get together and pool their money to make charitable gifts. For more information, including how to start a Giving Circle, see:www.GivingForum.org/GivingCircles offsite link
  • Trusts
    • A popular method of giving a substantial amount of money to charity is by use of different types of trusts.
    • One type of trust is a Charitable Remainder Trust in which the creator and/or another person he or she designates may receive ongoing payments for life from the property in the trust. At death or termination of the trust, the assets in the trust go to charity. The creator does not have access to the principal during the term of the trust. He or she only has access to some payments for the trust. 
    • It is advisable to seek professional assistance from a lawyer or account with expertise in the area before setting up such a trust.
  • Donor- advised funds
    • A donor-advised fund is an account with a registered charitable organization sponsor. The sponsor can be a charity or a financial firm. Some funds can be started with a donation as small as $5,000.
    • With a donor-advised fund, an individual contributes cash, stock or other assets to a fund.
      • The fund is a charity that invests donations and distributes funds to other charities for a fee.
      • The donor gets an immediate tax deduction for the contribution.
      • The donor recommends how the money is to be distributed to a charitable organization or organizations. The donor cannot dictate how the money is donated. (Generally speaking, however, in practice, all requests are granted as long as the recipient is a registered charity).
      • The gift to the charity can take place over time or be postponed for years.
      • The donor often gets to select investments which can include mutual funds.
      • Many major financial institutions and most community foundations sponsor donor-advised funds.
      • The tax break is the same as if you give to a public charity.
      • The specifics of setting up an account vary by the sponsor.
  • Private and Community foundations
    • Private foundations are set up by individuals under strict IRS guidelines. The foundation's bylaws determine the policies for selecting recipients and investments. Additional information is available through the Association of Small Foundations, www.SmallFoundations.org offsite link
    • Foundations have extensive rules and regulations for their operations. Complance with the rules and regulations can be challenging. For that reason, foundations are generally not established unless the charitable contribution is of a considerable amount.
    • Community Foundations are set up to distribute charitable donations to nonprofits in a particular geographic area. To learn more about community foundations, contact the Council on Foundations, www.cof.org offsite link, Tel.: 202.466.6512.

Reviewed by: Jerry S. Chasen, Esq.

Chasen & Associates, P.A.

Miami, FL

http://www.chasenlaw.com offsite link


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