Charitable Giving 101

The holiday season is a great time of year to make donations to your favorite charity, but how do you know where your money is really going? Stephanie AuWerter, Contributing Editor for SmartMoney.com, discusses the ins and outs of charitable giving.

Before you make any donation, make sure your charity of choice is legitimate. You'll need to do your homework ahead of time and thoroughly research the organization. "There are some scams out there, and some charities, while not outright scams, may not use much of your contributions towards the cause itself," says AuWerter. She suggests visiting CharityNavigator.org for help. In general, a good charity gives 75 percent or more of each donation to their cause.

If your donation makes you eligible for a tax break, be sure to get proper documentation. Not every donation qualifies as a tax break, and there are a few rules you'll need to follow. "First, you need to itemize your taxes. You also need to pick an IRS approved charity," says AuWerter. GuideStar.org can help you find one. Once you've made your donation, insist on a receipt, especially if you're making a donation that's larger than $250.00. In addition, gifts that you receive for your donation, such as a dinner or a vacation voucher, the cost must be noted on your tax return.

While many people can't afford large donations during these tough times, some are purchasing small items to try to make a difference instead. For example, if you buy a bottle of hand lotion with the breast cancer ribbon on the logo, one assumes that a large portion of the purchase price is going to the charity. Beware of these items; while these companies do donate to the cause, some are mere marketing ploys to get you to buy the product. "In some cases, only a teeny tiny percent of your purchase price is going towards that cause," says AuWerter. "If you really care about the issue, find another way to contribute."

If you're really strapped for cash, but still want to help out, consider donating gently used items to a good cause. Not only can you clean out your closet, attic or basement, you'll be helping someone in need. Some charities are looking for specific items, so check with the organization before you donate.

To really get into the giving spirit, ask family and friends to give donations to your favorite charity in lieu of buying you gifts this year. You can also donate your time by volunteering at a local food bank or other charity. Make it a family activity and help teach your children the true meaning of the words "donation" and "give."

For more information on giving to charities and other holiday related financial topics, click here to visit www.SmartMoney.com.

By Erin Petrun