SAN FRANCISCO (MarketWatch) — When economic times get tough, finding dollars to donate can get tougher, but there are ways to make your charitable dollar stretch farther.
Certainly, plenty of people find a way to give, no matter what the broader economic trends. While charitable giving declines during economic slowdowns, it doesn’t slow all that much.
The steepest decline in charitable giving in the past 40 years was in 1974, when charitable giving dropped 5.5%, said Patrick Rooney, interim executive director at the Center on Philanthropy at Indiana University.
Charitable giving has increased on average 4.3% per year in non-recession years, and is estimated to be more than $306 billion in 2007. In years with eight months or more of recession, giving declined 2.7% on average.
“The good news is the bottom doesn’t fall out, but realistically, we might anticipate some pain and suffering in the nonprofit sector,” Rooney said.
Certainly, in the current economy it makes sense to consider your donations carefully. For instance, many might think twice before making “impulse charitable contributions,” said Kim Wright-Violich, president of Schwab Charitable, a provider of donor-advised funds and charitable-trust services.
“For example, if a friend says, ‘I sit on the board of this charity; won’t you come to this event and write a check?’ — those you may give up or you may give slightly less,” she said. “But for those organizations you have consistently supported for a long time … people will try to make those contributions,” she said. “They will give up other things first — they’ll give up on a new car or a vacation.”
Still, there are some ways to make your charitable dollar go a little farther, or to delay the direct hit to your pocketbook right now.
Life insurance
If you can’t give cash now, consider giving your whole or universal life insurance policy to a charity. “Many times somebody will have a life insurance policy with a cash value and they no longer need the policy so they will donate the policy to the charity,” said Barry Picker of Picker, Weinberg & Auerbach, CPAs, in New York.
“The charity in many cases will just cash it in,” Picker said. In that situation, the donor generally can claim a deduction for their basis in the policy, usually the amount of the premiums paid, Picker said. But he warned people to be careful if they’ve taken a loan against the insurance policy. The taxpayer “could end up, instead of having a charitable deduction, having taxable income because of the forgiveness of the debt.” Talk to the charity and a tax expert before proceeding.
Or, you can apply for a new life insurance policy, or transfer an existing one, making the charity the policy owner and beneficiary. Then, the donor gives an amount equal to the premium to the charity each year. “The charity actually owns the policy,” Picker said. The taxpayer is “making a contribution to the charity for the charity to pay the premium.” The charity can take loans against the policy and receives the insurance benefit when the donor dies.
When making life-insurance-related charitable decisions, be wary and always consult the charity and a tax professional. “I’ve seen some questionable schemes that I would advise people to stay away from, having to do with third-party investors in life insurance,” he said.
Stock gifts
It makes sense to give appreciated stocks — you get the benefit of the tax deduction for a charitable contribution, plus you avoid capital-gains taxes.
But if, like many people these days, you’re holding stocks at a loss, sell them and give the cash to charity, Wright-Violich said.
That way, “you carry that capital-gains loss to future years and when you have capital gains that capital loss will offset any capital gains you will have in future years.”
If some of your long-term investments have a gain, be sure you enjoy both the charitable deduction for the donation as well as avoid the capital-gains tax by transferring the stock. “You can’t liquidate it first. The stock has to transfer to the charity,” Wright-Violich said.
Rollover IRA funds
With the passage of the Emergency Economic Stabilization Act of 2008, Congress extended a perk for wealthier older taxpayers who don’t want to face the tax hit from a required minimum IRA distribution. The tax perk allows taxpayers 70 1/2 or older to send up to $100,000 from their IRA to a charity income-tax free; it had expired at the end of 2007, but the financial rescue plan reinstituted it for 2008 and 2009.
Taking advantage of this tax perk is good for your tax bill now — and after you’re gone.
“IRA assets, if they end up in your estate, can be very, very heavily taxed,” Wright-Violich said. Plus, this type of donation satisfies your required minimum IRA distribution.
If that RMD would otherwise “trigger a higher tax bracket for you, then this is really useful,” she said. Note: You don’t get the charitable deduction for this rollover.
Time is money
Don’t have cash? Give your time.
“You can volunteer with a charity, either as a board member or to help them deliver a particular service,” said Art Taylor, president and chief executive of Better Business Bureau’s Wise Giving Alliance, an Arlington, Va.-based organization that monitors charities. See their site.
Another option is to think of this time as a way to connect with your own family — teenagers may well be amenable to the idea. “Think about volunteering as a family,” said Lisa Dietlin, president and chief executive of Lisa M. Dietlin & Associates, a Chicago-based philanthropic consulting agency for individuals and nonprofits. “It could be that instead of giving each other gifts you give the gift of time — you spend time together and donate it to a charity.”
There are other ways your time could mean money for a charity. “A lot of charities depend quite heavily on government support and in an economy where we may have to rationalize government resources, you’ll want to make sure your charity doesn’t get cut out,” Taylor said. Contact your favorite charity to find out whether calling or writing lawmakers might help.
Or participate in a walk, run or bicycle ride to help your favored charity raise money, even as you keep yourself in shape.
Unusual gifts
Donate stuff — clothing, car, household items — if you can’t give cash. See this IRS page for specific rules on noncash contributions.
Or contribute property, such as real estate or art work. “It’s a little harder to do this close to the end of the year, because [such donations] are complex,” Wright-Violich said.
“They require an independent evaluation and in real property, for example, you can’t go into a contract with a buyer and then donate the proceeds to charity. The charity needs to go into contract with the buyer. You need to have donated it to charity before it goes into escrow,” she said.
If you want to make this type of contribution, realize you might not be able to complete the deal in time to enjoy a tax benefit in the current year. “Those things take a little more lead time,” she said.
Another option is to think about charities in your holiday gift-giving to family and friends. For instance, Dietlin said, you can give to a nonprofit in someone’s name, such as buying a cow or goat for a needy family through Heifer International, or purchase a tangible gift, say a bracelet made by a woman of the Maasai, from the Unicef catalog with a portion of the proceeds going to charity.
Another option: Give a gift card through JustGive.org, and let your recipient choose a beneficiary.
Finally, give what you can. Dietlin noted that giving up your $3 cup of coffee each weekday in December could mean $60 for your favorite charity. “Every dollar does count.”
