If There’s Less to Give, Donate More Wisely

About half of all charitable donations are made between Thanksgiving and Christmas, and this holiday season figures to be a lean one for charities. But giving less doesn’t mean donors shouldn’t give wisely.

Charitable contributions tend to track the economy, rising a bit when times are good and falling when times are tough. However, contributions lag behind economic rebounds by six to nine months. So even though the economy is on the mend and the stock market has rebounded smartly this year, it still could be a down year for charities.

“Many generous Americans responded to ‘rally around the flag’ events like 9/11 and the war in Iraq, but that window of opportunity is closing,” said Trent Stamp, executive director of Charity Navigator, a New Jersey firm that rates 2,600 nonprofits. “With neither the money nor the motivation to actively support charities this year, we anticipate that Americans will give about 10% less than last year.”

Here are some tips for getting the most bang from your charitable buck.

Set goals: Donors should have goals for their giving, just as they do in other areas of their financial life, said Ed McMahon, vice president for programs at the Conservation Fund, an environmental charity based in Arlington, Va.

Donors should consider whether the mission of a given charity is consistent with their own values and beliefs. And they should seek out charities that address the goals that are most dear to them, whether that’s environmental protection or helping the homeless, McMahon said.

Investigate: Charities operate with varying degrees of efficiency. It’s important to see what percentage of your dollar is going to solve problems, compared with how much is being spent on fundraising activities or to pay administrative costs, McMahon said. In addition, he said, donors should know how much progress the charity is making each year in addressing its stated goals.

The data are readily available. Most major organizations file financial statements, called 990 forms, with the Internal Revenue Service. These forms show how much the charity has raised and how it spent the money. Charity Navigator and the American Institute of Philanthropy take this data and assign organizations ratings for effectiveness and efficiency, which are available on their Web sites at, respectively, www.charitynavigator.org and www.charitywatch.org.

Both organizations list top-rated charities by mission, such as literacy or health.

Concentrate: Many people give small gifts to a large number of charities. Unlike with diversifying an investment portfolio, however, there are drawbacks to diversifying charitable contributions, Stamp of Charity Navigator said.

For instance, charities often sell the names and contact information of their smallest donors, setting these individuals up for a nearly endless string of appeals. They don’t sell the names of large donors, he noted, because they prefer to keep those givers to themselves.

It also is much tougher to thoroughly investigate dozens of charitable organizations than it is just two or three.

By concentrating their gifts, donors are better able to give significant sums and establish long-term partnerships with organizations under which both the donor and the charity play a role in resolving the problems the giver is most interested in addressing.

Avoid telemarketers: Telephone appeals for cars, cash and clothing are rife at this time of year, Stamp said. But few donors realize that many of the telemarketers don’t work for the charities themselves.

Many of the callers are employed by for-profit fundraising companies that charge the charity 20 cents to 90 cents of each dollar raised. That’s a “ludicrous” level of fundraising costs and does little to advance the cause the donor is supporting, Stamp said.

Consider the tax implications: Although racking up tax deductions shouldn’t be the primary reason to give, wise donors manage the tax effects of their gifts, said Mark J. Blumenthal, partner in the private-client advisor group of Deloitte & Touche in Chicago.

For example, donating appreciated stock that has been held for more than a year may be a better option than donating cash. Why? It eliminates the need to pay capital gains tax on the profit from the stock because the gain is recognized by a nonprofit group rather than an individual.

Consider an individual who sells shares, bought at $100, for $1,000. Fifteen percent of the profit, or $135, will go to pay capital gains taxes, leaving $865 to go to the charity and entitling the donor to record an $865 tax deduction.

But if the shares are given directly to the charity, the donor gets the full $1,000 deduction for the market value of the shares and the nonprofit group would get $1,000 tax-free.

Clean house: Usable clothing, furniture and other items gathering dust in the attic or basement can be donated to charity. The donor can claim a tax deduction for the lesser of the original purchase price or the current market value.

Taxpayers can estimate the value of donated goods by figuring the amount they would receive for the items at a thrift store or garage sale. A software program called “It’s Deductible,” offered through many tax preparation companies, can help estimate the value and document the deductions.

Those who give away more than $500 in depreciated goods must keep a written record of what was donated; those who give away an item worth more than $5,000 should get a professional appraisal, Blumenthal noted.

Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For past Personal Finance columns, visit The Times’ Web site at www.latimes.com/perfin.

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You and Your 401(k)

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