by Archie M. Richards, Jr., CFP^®
October 20, 2003

The time of year approaches when charities solicit money in earnest. Here are some helpful hints:

For cash gifts to qualified charities, you can deduct up to 50 percent of your adjusted gross income. (Referred to as AGI, this is the number at the bottom of page 1 of your ever-lovin' Form 1040.)

Let's say your AGI is $40,000. Feeling generous, you want to deduct a charitable gift of $30,000. Nope, you can only deduct $20,000 (half of $40,000). The $10,000 excess is carried forward to next year's return. You can carry forward unused charitable deductions for a total of 5 years.

Make sure the organization is qualified as a charity by the IRS. The website for Charity Navigator (www.charitynavigator.com) contains this information. It also rates charities according to the money they spend raising money. The less spent on fund raising and administration and the more spent on the charity, the better.

Charitable gifts made by credit card during the tax year are deductible for that year even though the credit card is repaid after the yearend.

When you give appreciated stock to a charity, the deduction is limited to only 30 percent of your AGI, not 50 percent. (Don'tcha just love tax details?) Again, a 5 -year carry-forward applies. By not selling the stock yourself, you avoid paying the capital gains tax. The charity sells the stock and pays no tax at all.

If your stock is held by a brokerage firm, notify the firm in November of your intention to gift the stock. This gives the broker time to make the transfer. The charity must receive the stock by yearend for you to claim the deduction.

If you hold the stock at a loss, do not donate it to the charity. Sell it instead. Take the loss in your return and donate the proceeds to the charity. You get the loss, and the charity gets the money. Everyone wins except the IRS.

Let's say the yearend approaches. You want to take a deduction, but you haven't decided which charity to benefit. Donate to a Donor Advised Fund (DAF), which serves as an intermediary. The gift is irrevocable, and the DAF has final say about where the money goes. But if the charity you select is reasonable and proper, the DAF will follow your suggestion, charging only a modest fee. The American Endowment Foundation (888-440-4233) is a suitable DAF. Its minimum contribution is $10,000.

Another kind of intermediary is a community foundation, which follows your suggestions for making gifts in your particular region. To find one, go to a web search engine, such as Google, type the name of your region, and add "community foundation." Or call a prominent charity and ask if they know of a community foundation in your area.

If you prefer to have complete control over your charitable contributions, set up a private foundation. But don't even think about doing this for less than $1 million - enough said about that little number.

Numerous legal devices for charitable giving come under the heading of "Planned Giving." A prominent one is called a Pooled Income Fund. You give cash or stock to a charity. It invests the money along with other gifted funds and pays you regular income for the period initially agreed upon. Thereafter, the charity uses the principal for its own purposes. You may take a deduction at the time of the gift, although not as large a deduction as if you give the money outright with no income requirements.

Organizations that are not tax deductible might interest you. For example, the Club for Growth (www.clubforgrowth.org) funnels campaign gifts to conservatives who are running against liberal members of Congress who call themselves Republicans. Also, U.S. Term Limits (www.termlimits.org) lobbies for imposing term limits on members of federal and state legislatures. Big government does more harm than good. The bigger and more intrusive it is, the wider the gap between rich and poor. I think an effort to make government smaller and less intrusive is a wonderful and highly appropriate charitable activity.