Private Advisory Group

The return of Income Tax Breaks for Donations after 70 ½

Posted by Steve on June 21, 2011  |  Comments Off

The recent tax bill (enacted December 17th) had some good news for those age 70 ½ or older. A popular tax break for those who make charitable donations from their individual retirement accounts was resurrected. Under the new law, IRA owners who are 70 ½, can donate up to $100,000 per year from their account to one or more charities.

How donors benefit

Under the new law, which was first enacted in 2006, resurrected in 2008, and lapsed again in 2009, a donor receives no tax deduction for such charitable contributions, but they also don’t have to include the IRA withdrawal in their taxable income.

Essentially, that means the withdrawal will not inflate your taxable income. You can make donations from a SEP or SIMPLE IRA as well, provided no contributions were made into those accounts the same year as the gift was distributed.

Donate according to the rules

The rules further indicate that the donation should be issued directly to a public charity (we’ll talk about how to pick one in a minute). Private foundations, donor-advised funds, supporting organizations and charitable gift annuities do not count. The charity must also acknowledge the gift in writing.

Making the Most of your Charitable Donations

Posted by Steve on June 20, 2011  |  Comments Off

In a recent post, we described how to take advantage of a recently resurrected tax break for charitable contributions if you are 70 ½ and how best to research a charity so you know your money will be well-spent. In this post, we’re going to talk about ways to maximize your charitable giving (even if you’re younger than 70).

Focus your dollars

If you have a limited amount to give, experts say that it’s best to concentrate your giving on the charity that is most important to you. Not only does this make the decision-making process easier for you, it also gives you an easy out when other groups approach you for your dollars. Focusing your dollars means your cash will have a bigger impact.

Consider donating more than cash

Donating objects such as jewelry, automobiles, or the use of a second home can have just as big an impact as sending a check because those objects can be auctioned off for more money. Also, non profits nearly always need volunteers and there are many roles within a charitable organization to fill. You can ask your favorite charity what they might need in the way of time or other, and you can find opportunities at OnlineVolunteering.org.

Give while you shop

If you shop online, you can use a free portal called iGive.com to send a percentage of your shopping dollars to a favorite charity – without changing the price tag of the items you buy. As an example, a $50 purchase with Famous Footwear generates $2.60 for the non profit of your choice. Register with iGive.com and you get coupons and free shipping deals as well.

Avoid these losses and scams

Donations are diminished by 2-3% when you pay with a credit card because of card issuer processing fees. Even fund-raising sites take as much as a 4.75% cut when they process your donation. Pledging through a for-profit telemarketing firm can take as much as half your donation, so it is the most ineffective method of giving.

Look-alike websites are often set up with URLs and names that are very similar to charity organizations. These phishing sites are set up to steal your financial data and are very common right after a disaster, when people are more likely to open their wallets for the victims.

The most effective way and safest way to donate is to issue a check directly to the charity. Their website will have the address where you should send the check, but it can’t hurt to give them a quick call to double-check you have an accurate address just to be sure.

Get Acquainted with your Charity’s Financial Practices

Posted by Steve on June 17, 2011  |  Comments Off

Even if you have a favorite charity, doing a little homework can reassure you that your donation is going to a good cause rather than lining the pockets of the charity’s executives.

1. Look for an IRS-approved charity. Tax-exempt status means your contributions are tax-deductible, plus the IRS has become pretty good at weeding out bogus organizations. Of course, the IRS hasn’t become perfect at it yet, and so, you’ll want to continue with the next steps.
2. Locate the charity’s Form 990. These forms are public information for any charity that earns more than $25,000. You can access charity tax returns through these evaluation websites: GuideStar and Charity Navigator. To get the Form 990 for any organization, you’ll have to register (for free) and conduct and Advanced Search. If you have the charities’ exact legal name, that helps.
3. Check the charity’s excess or deficit. This is essentially their operating profit and loss statement and it’s likely you’ll want to see expenses that are pretty close to the revenue numbers.
4. Check their net assets at the end of the year. This figure is the charity’s net worth as of that date. You might be surprised to find that number can be quite high, but ultimately you choose whether to add your donation to their pile or not.
5. Check their functional expenses. This schedule tells you how much was spent on various categories for the charity’s services. In most cases, you’ll want to see expenses that are consistent with the charity’s stated purpose and mission. It’s also nice to see modest overhead numbers, but again, it’s ultimately your decision.
6. Finally, check the salaries and other distributions to officers, directors, and employees. This doesn’t mean you have to avoid giving to a charity simply because the CEO makes over $100,000, however. According to Charity Navigator, the median CEO salary for charities with expenses between $3.5 and $13.5 million is $160,000.

Try not to fixate on charity ratings

The websites shown above: Charity Navigator and GuideStar have sprung into being to help donors evaluate a charity, specifically their administrative, employee, and fund-raising expenses. While it’s important to look at their ratings, it’s also important to understand that non profits have become experts in managing their rating. In the past, some have disguised fund-raising mail as ‘educational material’ or passed fund-raising costs along as charitable program expenses.

Of course, there’s also the other side of the coin: some charitable organizations earn lower ratings when they don’t deserve it. For example, groups with higher overhead, such as food banks, may have higher administrative costs because the provide a direct service to people in need.

Best method if you’re still unsure? Pick up the phone and ask the non profit to explain the numbers behind their rating. Speaking with an executive or financial officer – and be sure to ask specific questions – can tell you a lot about whether that particular non profit deserves your money.

Tax substantiation of charitable deductions

Posted by Christopher on May 27, 2009  |  Comments Off