Does the holiday season usually make you want to count your blessings and give back in some way? If so, you’re not alone.
Some 40 percent of charitable donations are made during the last six months of the year, a period known in the philanthropic world as giving season. In all, Americans donated more than $373 billion to charity last year, equivalent to about 2 percent of U.S. GDP, according to the National Philanthropic Trust, one of the country’s largest grant-making institutions.
- For more tips on budgeting and spending for the festive season, see our Holiday Financial Guide
But while Americans are clearly generous, many aren’t exactly strategic about making charitable donations, and that can backfire.
“People spend a lot more time looking into restaurants than they do thinking through their charitable giving,” said Eileen Heisman, chief executive officer of the National Philanthropic Trust.
With the holiday season upon us, here are some tips for making the most of your donations:
Do your homework. Rather than giving spontaneously, take the time to identify the causes that are important to you and the charities that support those causes. You may want to narrow your focus by donating, for instance, to a group that provides mammograms to at-risk women in your community, rather than supporting generic cancer charities.
Once you’ve identified specific charities, look at them more closely. Check out their websites and social media channels to learn more about their leadership, budgets, programs and accomplishments. Read their annual reports, and check the search engines to see what kind of news coverage and reviews they’ve gotten.
Avoid scams by donating directly via a charity’s website. And the National Philanthropic Trust recommends that you support only groups that have tax-exempt, nonprofit status under Section 501(c)(3) of the Internal Revenue Service Code.
With more than 1 million charities in the U.S., it’s important to identify those that are fiscally responsible, transparent and effective. Plenty of information is available online, thanks to research portals and evaluators like Charity Navigator, GuideStar, CharityWatch and GiveWell.
Set a budget. Decide exactly how much you plan to give this year, which will help you make more informed choices during the emotionally charged holiday season.
If you can only afford a small donation, consider getting friends and family members to also support your favorite charity through good-cause crowdfunding sites such as CrowdRise and Razoo. You can also send holiday “gifts” to friends by donating to nonprofits on their behalf through Small Token.
Limit yourself to a few charities. Rather than spreading your money across many organizations, make larger gifts to only a few (say three) organizations to make a bigger impact, said Heisman of the National Philanthropic Trust.
Also, try not to be fickle by picking new charities every year, she added. “If charities know you will be a predictable donor, that saves them the time and effort of finding new donors each year. There is no social problem that gets solved in a year. So it’s important to see how organizations perform over time,” she said.
Don’t mess with the IRS. If you hope to both give and receive, in the form of a tax deduction for your donation, you must follow IRS rules.
For instance, to get a deduction you must donate to a qualified charity. Contributions to individuals, political groups or candidates aren’t tax-deductible. To check the status of a particular organization, use the IRS select check online search tool.
If you get something in return for your donation, such as meals or tickets to an event, you can deduct only the amount of your gift that is more than the value of what you got in return.
Also, don’t forget that you must make your donation by Dec. 31 to claim a deduction for the current tax year. Donations charged to a credit card before the end of this year count for 2016, even if you don’t pay the bill until next year. Checks must be mailed by year-end if you plan to claim a deduction for 2016.
Consider noncash donations. People donate all sorts of items to charity, from real estate to coin collections. Keep in mind, though, that not all charities are equipped to take unusual gifts, particularly small, local organizations. In addition, the IRS has specific rules for taking tax deductions for noncash gifts.
Donating appreciated, long-term securities -- in other words stocks, bonds or mutual fund shares that you’ve owned for at least a year and have risen in value -- has several advantages. You get an tax deduction for the fair market value of your gift, and you won’t owe capital gains taxes because the securities were donated, rather than sold. Tax-exempt charities can sell donations of appreciated assets without owing capital-gains taxes on the profits.