Donate Money the Smart Way


For charitable organizations, the end of the year is no holiday. Charities need people to donate money, and now is their busiest season, as they ramp up their fundraising efforts to get generous donors to make year-end gifts.

When it comes to making those gifts, though, simple isn't always best. Although it's easy just to write a check to get your charitable giving marked off your to-do list, somewhat more complicated giving methods can get you even more bang for your buck. That can help you do more good while also boosting your own finances.

But how can you be smarter about donating money? Here are some ideas you may not have thought about before:

1. Give stock, not cash.
The advantage of pulling out your checkbook or donating money online or on your mobile device is that it's easy to get done quickly. But one technique that many rich people use is to give away shares of stock rather than cash. Although giving stock is a bit more of a hassle, the benefit is that you can deduct the full market value of shares you've held for more than a year without having to pay tax on capital gains on those shares.

For instance, among the members of the Giving Pledge are many corporate founders who own stock worth billions of dollars. With Facebook's Mark Zuckerberg, Tesla Motors CEO Elon Musk, and Reed Hastings of Netflix among dozens of influential business leaders who've pledged to give the majority of their vast wealth to charity. With most of them having substantial portions of the wealth in company shares and options, giving away stock is the best way to help charity while also avoiding a big tax bill.

But you don't have to be rich to benefit from donating stock instead of cash. On any stock that you have a long-term gain, using it for a donation saves you on taxes. Talk to your charity about whether they have arrangements to accept gifts of stock.

2. Become a long-term philanthropist.
Private foundations have become a major force in the charitable giving arena, with wealthy families financing philanthropic arms of their family fortunes to target their donations. But even those of more modest means can set up longer-term giving strategies by using donor-advised funds.

Many financial companies, including Fidelity, T. Rowe Price , and Vanguard, allow customers to set up donor-advised funds. To set up a fund, you make a relatively large charitable gift -- minimums at those three institutions range from $5,000 to $25,000. But rather than having it all go straight to charity right away, the institution holds it on your behalf in a special fund, waiting for you to designate how much and when gifts will be made to the charities you choose.

The benefit of donor-advised funds is that you get a tax deduction when you donate to the fund, even if you wait years to use up the entire gift. That can be especially useful if you have a windfall year with a lot of income and want to maximize deductions to offset that income right away. To get more information, take a look at the T. Rowe Price, Vanguard, or Fidelity websites.

3. Double-up on Dec. 31 (or Jan. 1).
Charities are willing to bend over backward to help you get the most tax benefits from your gift. Although most charities expect to get single gifts toward the end of the year, you may get more benefit by doubling up all at once.

How it works is simple: by making your 2012 and 2013 donations at the same time, you can time your gift to choose which tax year they'll go into. If you donate before Dec. 31, you'll be able to claim both gifts as deductions on your 2012 return. Alternatively, giving both gifts will help you take advantage of expected higher rates in 2013. Moreover, both strategies get cash into charities' hands faster -- which is important given how much they need money right now.

Be a smarter giver
Donating money to charity is extremely important, and these tips are just a few of the strategies you can use to make the most of your charitable donations. With charities depending on your generosity, you owe it to yourself to make your money go as far as it can.

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