If your commitment to giving to charity doesn't begin and end with the ALS Ice Bucket Challenge, you may be among the millions of Americans who weigh competing charitable requests during the last few months of the year. Year-end is prime time for giving money for two practical reasons -- the holiday season tends to put people in a giving mood, and any donation made before midnight on Dec. 31 is deductible on 2014 tax returns.
However, if you want to get the biggest bang for your buck, you'd be wise to start mapping out a giving plan now, said Eileen Heisman, chief executive of the National Philanthropic Trust. That gives you time to review your charitable goals, the effectiveness of the charities you're considering and your ability to give in tax-efficient ways.
What do you need to know?
Be selective. Just as real charities go into overdrive during the holiday season, so do con artists and dubious organizations that have little charitable impact. Even if a charity's name appears familiar, take the time to get the details on how it uses its money. In many cases, faux charities mimic the names of real organizations to trick donors into giving to the wrong cause. Both the Better Business Bureau and Charity Navigator warn donors to investigate before you give.
Consider, the Children's Defense Fund and the Children's Charity Fund sound a lot alike, right? But the Children's Charity Fund spends 94 percent of its budget on fundraising and administration and just 6 percent on the cause donor's think they're supporting. The Children's Defense Fund, on the other hand, spends 85 percent of its budget on child advocacy. The BBB recently highlighted two animal rights groups that could easily be confused, but couldn't be more different.
Give more to less. No matter how big your budget, there are limits to how much you can give in any given year. But the appeals from worthy causes often appear limitless. It's not uncommon for philanthropically minded people to give small amounts to a wide array of charitable organizations, Heisman said.
Unfortunately, that's not an effective approach. Even though small gifts are greatly appreciated, they increase a charity's administrative costs. After all, it takes the same time to process a check and send an acknowledgement for a $25 donation as it does for a $250 donation. If you want the organizations you support to be able to use a larger percentage of your gift on programs than administration, you'd be smart to give larger checks to a smaller number of groups.
Also consider becoming a consistent donor, where you give to the same groups year after year, Heisman suggested. When charities know they can count on you, they spend less time and money soliciting your donation and that also lets them focus on the cause.
Volunteer. If your heart is big but your budget is small, you can still have a big impact by volunteering time rather than money. Charities need boots on the ground to do everything from fundraising to carrying out their mission. When figuring out where to give your time, consider your skills and the causes that mean the most to you. The ideal match is where your interests, unique abilities and the charity's needs match.
Don't imagine that you have no unique ability just because you're not a computer whiz or a lawyer. You might be unusually patient, and that could be just the ticket for helping children or abused animals, for instance. If you're good with tools, you might have the perfect skills to volunteer with Habitat for Humanity. Great cook? Consider a soup kitchen. Not sure how to find a charity that fits? For adults, organizations such as VolunteerMatch.com can help ferret out the possibilities; VolunteerNation.com provides a similar service for teens.
And if you are passionate about an organization, don't worry about matching your skills, said Ken Martinet, president and chief executive of Catholic Big Brothers in Los Angeles. "There are an incredible number of different volunteer opportunities. It's up to the charity to find the right opportunity for you."
Donate used. If you have clothing, toys, furniture, housewares -- virtually anything useable that's not being used in your garage, closets or attic, consider donating any items still in good condition. Organizations supporting causes ranging from veterans to hospitals operate thrift stores that take your used goods and sell them -- or simply provide, say, your old coats or dresses and suits, to people who are down on their luck. As the donor, you can deduct the value of the used goods on your tax return at the estimated cost of what you would be able to sell those items for at a garage sale.
Give stock. If you want to give a big gift and have investments that have appreciated in value, you can get a better return by giving the gift in stock rather than cash. Most major charities can explain how, Heisman said, and these gifts benefit both donor and recipient. The reason: If you give stock rather than cash, no one pays tax on the gain, thus you have either more money in your pocket or the ability to give more to the cause.
Consider what would happen if you wanted to give $10,000 to charity and had stock that you had purchased for $1,000, but was now worth $10,000. If you sold the stock to give the gift, you would owe (assuming it's a long-term holding and you're in a middle-income tax bracket) 15 percent on the $9,000 gain, or $1,350 in capital gains taxes.
To be sure, you'd also get a deduction for the $10,000 donation. But if you give the stock directly to the charity, you get the same deduction for the full market value of the shares and no one pays the capital gains tax. (The charity is tax-exempt, so they can sell the shares you give them without paying a levy to Uncle Sam.) That means that both you and the charity end up ahead.