by Archie M. Richards, Jr.
July 10, 2006

If a certain charitable purpose means a lot to you, make a charitable gift. Connecting with a charity can be highly satisfying, emotionally and financially.

But watch out for organizations that spend a big chunk of your money to raise other money, while the executives take home huge salaries. The following organizations can help select well-managed recipients.

• Better Business Bureau Wise Giving Alliance (www.give.org; 703-276-0100)
• American Institute of Philanthropy (www.charitywatch.org; 773-529-2300)
• Guidestar (www.guidestar.org; 757-229-4631)

Make gifts to the organization by check. If a solicitor asks you to pay him instead of the charity, he's probably a fraud. Report him pronto.

Tax deductions ease the way. (To gain the benefit, you must itemize your deductions.) If your last dollar of income is federally taxed at 25 percent, a gift of $1000 saves $250 in taxes.

Charitable deductions are limited in a single year to 50 percent of Adjusted Gross Income (AGI; the number at the bottom of page 1 of Form 1040). If your gifts exceed the limit, carry them forward for 5 years, deducting up to 50 percent of AGI each year.

For gifts of property, the limit is reduced to 30 percent of AGI.

If you've held a stock for over a year and it stands at a profit, gift the stock itself and deduct the fair market value. The charity sells the stock, paying no capital gains tax.

If the stock is held in a brokerage account, identify in writing the organization you want it transferred to. Do this by mid-November, providing time for the firm to make the transfer. Unless the charity receives the stock by yearend, you can't take a current deduction.

If you hold stock at a loss, reverse the procedure. Sell it yourself, take the loss in your tax return, and gift the cash.

If you've held the stock for just a year or less, sorry, only your cost is deductible.

A gift made by credit card is deductible in that year, even though the credit card is repaid in a future year.

The following techniques combine charitable giving with income needs:

Pooled Life Income Fund: Money you give to the charity is pooled with funds from other donors, forming, in effect, a mutual fund. The fund pays income for life to you and/or others. Thereafter, the charity takes the remainder.

Charitable Remainder Trust (CRT): Same arrangement and generally used for larger gifts. A CRT is perfect if you:

• have a charitable interest,
• hold shares of stock at a profit that pay no dividends, and
• need income.

Charitable Remainder Trusts come in two varieties:

• Charitable Remainder Unitrust: The income rate stays the same, but it's based on the value of the trust as it changes from year to year. The income payments therefore fluctuate, hopefully upward.

• Charitable Remainder Annuity Trust: Again, the income rate stays the same, but it's based on the trust's original value. The income payments remain unchanged.

• For the opposite of Charitable Remainder Trusts, use a Charitable Lead Trust. Here, the trust pays income to the charity for a designated number of years. You or your family members then receive what's left.

In all these cases, a portion of the trust value is deductible.

Finally, consider giving your house to a charity with a Retained Life Estate. You may continue living there until you move or die. The charity then sells the house and retains the proceeds.

Gifts may be suitable even though they're not deductible. For example, I believe the greatest source of poverty and unhappiness is big government. Cutting government's size calls for restoring citizen control by limiting the number of terms of politicians at local, state, and congressional levels. U.S. Term Limits (www.ustermlimits.org) strives for this. Gifts are not deductible, but the organization strikes me as charitable anyway.

Whatever charitable purpose turns you on, that's the one for you.