Frugality produces an abundance that makes for easy gifting. But that doesn’t mean frugal fringers give nonprofits a free ride. The same attitude that drives their household spending also drives their philanthropy. In both cases, they demand value. For a fringier approach to charity, consider these strategies.
19.1 Run Background Checks
The CES reports that households donated an average of $1,721 in 2011, which represents 3.9 percent of the typical budget. Given the large amounts involved, it makes sense to vet nonprofits with the same attention you give to products and services.
VETTING THE EASY WAY: ONLINE CHARITY REVIEWS
□ 19.1.1 Visit Charity Navigator
CharityNavigator.org evaluates the financial health of more than 5,500 charities and issues ratings based on a four-star system.
□ 19.1.2 Visit the Better Business Bureau
Charities open their books to the BBB, which rates them under several accountability standards. Visit BBB.org/us/charity/.
□ 19.1.3 Visit CharityWatch
This site rates over 500 charities on an A to F scale and publishes the results in its Charity Rating Guide. Visit CharityWatch.org.
□ 19.1.4 Visit Philanthropedia
Currently, more than 3000 experts have contributed to reviews of 560 nonprofits in 36 categories of causes. Visit MyPhilanthropedia.org.
□ 19.1.5 Visit GiveWell
This site conducts in-depth research to identify a few nonprofits that deliver stellar returns on donations. Visit GiveWell.org.
VETTING THE HARDER WAY: DIY BACKGROUND CHECKS
□ 19.1.6 Read a Brochure
Any legitimate charity publishes materials that discuss its mission.
□ 19.1.7 Visit Guide Star
GuideStar.org posts data on more than 1.8 million nonprofits.
□ 19.1.8 Check State Registries
Many states require the registration of charities. Avoid gifts to unregistered nonprofits. At best, they don’t have their act together enough to comply with the law; at worst, they’re frauds. Visit nasconet.org/documents/u-s-charity-offices/.
□ 19.1.9 Note the Charity’s Time in Service
The newer the nonprofit, the more you should investigate it.
□ 19.1.10 Search the Web
The charity you like may have a record of laudable works or abject mismanagement. A quick search provides fast answers.
□ 19.1.11 Review Financials
According to CharityNavigator.org, charities should spend no more than 25 percent of collected dollars on administration and fundraising. If your charities overspend in these areas, reconsider your support. There might be better places to send your money.
□ 19.1.12 Check the Recent Track Record
Favor charities that can boast of recent accomplishments, as opposed to those that rest on their laurels.
□ 19.1.13 Start Small
Giving a little motivates you to monitor the charity more closely.
□ 19.1.14 Best of all, Volunteer
When you donate time, you learn firsthand about the nonprofit’s operations. There’s no better way to run a background check.
19.2 Get the Most Bang for Your Benevolent Buck
Make sure your charity receives the full benefit of your contribution.
□ 19.2.1 Avoid Gifts by Credit Card
When you use plastic, the charity pays processor fees to your credit card company. When you pay by check, it receives full value.
□ 19.2.2 Avoid Gifts of Greenbacks
Cash contributions are easily lost or stolen. They’re also difficult to prove in tax audits.
□ 19.2.3 Seek Out Dollar Matches
Ask the charity whether any large donors match contributions.
□ 19.2.4 Give Earlier in the Year
Many wait until year’s end to give, but charities often have unmet needs at other times. Investigate whether you can deliver extra value by donating when contributions lag.
□ 19.2.5 Give Goods
Donate merchandise instead of money. If you use the products buying checklist (Appendix 1), you probably can find a lower price than the charity could—and this itself delivers added value.
□ 19.2.6 Make Gifts in Honor of Friends and Family
Acknowledge others with contributions to their favorite charities. Funnel more money to your favorite nonprofits by asking for donations in lieu of gifts.
□ 19.2.7 Spread the News
This way, you inspire others to give. So tell friends about your favorite causes and post positive opinions at CharityNavigator.org.
19.3 Maximize Tax Benefits
The more deductions you receive, the more you can afford to donate. Important: consult your tax advisor before you take these actions.
□ 19.3.1 Assess Whether You Can Itemize this Year
Under current tax laws, only itemizers can deduct charitable contributions. If you’re close to qualifying for itemization, accelerate any donations slated for the next year into the current one so that you meet the necessary threshold.
□ 19.3.2 Confirm Deductibility in Advance
By law, you can’t deduct unless your charity registers with the IRS as a “qualified organization.” The IRS lists qualified organizations in its “Exempt Organizations Select Check,” an online search tool located at IRS.gov. If your charity is listed there, your contributions qualify for a deduction.
□ 19.3.3 Deduct Car Expenses
You can deduct a standard mileage rate for unreimbursed travel in connection with charitable work. The rate varies each year and the rules are complicated. See IRS Publication 526.
□ 19.3.4 Give Appreciated Stock
If you donate appreciated stock from a taxable account, you avoid paying capital gains (currently 15 percent for most wage earners) and still receive a deduction for the stock’s full market value. Most large charities have systems in place to handle such gifts.
□ 19.3.5 Contribute to Donor-Advised Funds
With this approach, you make an irreversible donation to the fund, claim an immediate deduction, and then later—maybe years later—recommend to the fund’s trustee what amounts should be donated where. Such funds offer many advantages. For example, you can gift appreciated stock and funnel the proceeds to smaller charities, many of which lack the capability to accept such gifts directly. For details, visit Vanguard.com, Schwab.com, and Fidelity.com.
19.4 Avoid Pitfalls
Americans give billions each year to charities. Predictably, scammers seek to siphon off some this largesse for themselves. Frustrate the fraudsters by following this short list.
□ 19.4.1 Avoid Impulsive Giving
Especially after natural disasters. Vet first; give later.
□ 19.4.2 Ignore Telemarketers
At best, the charity pays inflated fees to third party solicitors. At worst, the telemarketers are outright frauds. Bypass intermediaries and give directly.
□ 19.4.3 Reject High Pressure Tactics
Legitimate charities don’t lean on people for donations.
□ 19.4.4 Beware of “Thanks for Your Pledge” Scams
Don’t converse with callers who thank you for pledges you don’t recall making. It’s a common fraud.
□ 19.4.5 Beware of Soundalikes
Double-check the name and website address. Many dubious operations choose monikers that mimic those of legitimate charities.
19.5 Follow Up
□ 19.5.1 Keep Payment Records
Retain all paperwork that proves your payment, including any cancelled checks or credit card statements. Consult your tax advisor.
□ 19.5.2 Keep Charity Acknowledgements
In order to deduct a cash donation of $250 or more, you need a letter from the charity that lists what you gave and whether you received anything of value in return. You need the same type of letter when you deduct noncash gifts valued between $501 and $5,000. See IRS Publication 526. For noncash gifts over $5,000, you need a written appraisal that complies with IRS Publication 561.
□ 19.5.3 Photograph Noncash Gifts
Take a photo or video of what you give and use it later to help value the property for tax purposes.
□ 19.5.4 Monitor Your Charities
Make sure they continue to follow the principles that caused you to donate in the first place. If any drift off course, give elsewhere.