Earlier this year I discussed how I was going to follow Flexo’s lead and open up a Fidelity Charitable Gift Fund. The idea behind the Fidelity Charitable Gift Fund is that you can make a charitable donation now, have the assets appreciate, and then decide where donations will go later on. Much like how a mutual fund is actually an organization, the Fidelity Charitable Gift Fund is an organization. When you donate money, you are donating to the Fidelity Charitable Gift Fund and you have two options as to where the money goes. You can either open up a Giving Account under your name (or any name you wish) or open up a Pooled Income Fund.

Giving Account

This is the type of account Flexo talked about and one that I was seriously considering. What you do is open a Giving Account, contribute funds, direct how the funds are to be invested, and then recommend grants. You will notice that all the documents say that you will “recommend” which organizations will be the beneficiary of your funds, but they aren’t legally bound to honor your wishes. I think that specific language is used for legal purposes but they honor most recommendations.

Pooled Income Fund

This is the second option and one I hadn’t considered. It’s part charitable fund and half income generation, akin to an annuity, though the final payout goes to a charitable organization (up to 10). So let’s say you contribute $10,000. You direct where the contributions will be invested and you can select up to two beneficiaries. Each quarter, the proceeds from your investments will be paid out to the beneficiaries. Upon the death of the final beneficiary, the value of the account goes towards charities. It’s different than the Giving Account and less desirable for what I’d like to accomplish.

Considerations

So, it sounds pretty easy right? Why wouldn’t everyone do this? (these concerns cover only the Giving Account)

• Initial limits and fees: The initial contribution has to be greater than $5,000 and each additional contribute has to be greater than $1,000. The fees include the expenses of the investments plus an Annual Administrative Fee. The administrative fee is the greater of 0.60% of the total fund value or $100 for the first half million, 0.3% for the second half million, 0.2% for the next million and a half, and 0.15% for the rest up to five million. Beyond that and the fees are different. If you were to contribute $5,000, you’d be talking an administrative fee of 2% plus the underlying investment fees. If you don’t have $5,000 or you don’t want to pay any of these fees, you might want to just donate directly to a charity.
• Time horizon: Since you do select investments for your contributions, there is the potential that your investments will lose value. So, if you plan on doing this, contribute funds you think you might want to use next year or the year after (or, ideally, in five years). Increasing the time horizon will smooth out the random walk of the stock market.
• Tax benefit: As much fun as it would be to have the Jim Charitable Trust, the tax benefits are better if you contribute appreciated stock. When you donate appreciated stock that you’ve held for over a year, you can deduct the entire value of the stock from your income, including the appreciation. (For more on that, read this article about reducing your capital gains by donating stock) With the Giving Account, you deduct your initial contribution and not the amount actually granted, so you never actually benefit from the appreciation (but you can donate appreciated stock).
• Grant exclusions: Almost any recommendation you give will be accepted with the exception of several groups, though there are very good reasons. For example, you cannot recommend any donation that would result in you receiving any sort of gift or preferential treatment. The list is available here.

I’ll be honest, the idea of opening a small charitable gift fund in our name does sound like fun and it would be great to be able to leverage the market to help further our philanthropic goals but with a $5,000 start price and those annual fees, I may wait a little while before opening one up. The uncertainty of the market (and a short time horizon) are also serious considerations as well… what do you all think? Good idea? Bad idea? Wait? Go now?

Are you in the Norfolk, VA area? Do you like to make wishes come true? Well it’s the summer and my buddy Scott is running his Ghent Bar Tour once again for the Make A Wish Foundation. If you’ll remember, the winter bar tour a few months ago raised a staggering $14,000 (crushing the goal of $8k) to help Ashtin and Bradin. Ashtin got his wish of a safe room so his parents wouldn’t worry about him and Bradin was able to go see Spongebob Squarepants, a remarkable achievement. This year, the bar tour will be taking place on July 28th and tickets only $15 now (if you buy before June 30th) and only $25 the day of - remember its going to a great cause. (Use Google Checkout if you register online, it won’t charge them a fee)

FMF of Free Money Finance and I are teaming together to try to raise some cash for the cause, we’ve both agreed to match donations up to $500 each. So if readers of Free Money Finance and Blueprint can come up with a thousand dollars of donations to the Make A Wish Foundation, we’ll get together and contribute a thousand dollars - making the total donation worth two thousand dollars. Any donation of any amount is appreciated!

Some details on the donations, they are made directly to the Make A Wish Foundation and entirely tax deductible (check with your tax professional), but we ask that you mail them to Scott so he can collect it all in a package to present to the foundation. Please email me (jim at bargaineering dot com) if you’d like to donate and thank you!

And, I’m going to attend the tour, so if you are going then shoot me an email too!

Dong left a great idea on my post yesterday about donating stock to charity:

I did this earlier this year. Didn’t cost a thing via E*Trade. I imagine it’s true of other brokerages. It’s a great way getting rid of odd lots. I did this with a bunch spinoff shares that would’ve been expensive to sell.

Back when I owned shares of H.J. Heinz Corporation (whenever I’ve worked at a company, its shares have always gone up while I was there), they sold a portion of their business to Del Monte Foods and thus part of their stock was split into shares of Del Monte. Well, when you have like fifteen shares of a DLM, it’s only worth about $150 - the transaction fees of selling the shares would make it cost prohibitive. Eventually I did end up selling the shares but had I known what I know now, I likely would’ve donated them and saved myself some in taxes.

Last year, my fiancee and I donated a few dollars to some charities whose work we very much believe in and this we’re hoping to do the same. Just recently though I’ve come across a more powerful way of donating money that isn’t necessarily new, though it is new to us. Donating stock to charity is especially powerful because it allows you the ability to avoid capital gains tax and still lets you deduct the full value of the stock from your income (if you itemize).

Let’s say you bought $100 worth of stock in Amazon.com (I own Amazon.com) over a year ago. In that year the share price has essentially doubled, making your position worth $200. Now that a year has passed, you’re subject to the 15% long term capital gains tax if you were to sell the position. Now, you plan on donating $200 to the National Hemophilia Foundation this year now that you’ve read this article, you’re considering donating the $200 position in Amazon. What you get is an itemized charitable donation deduction of $200 and the Hemophilia Foundation gets their $200.

Is this better than donating stock? Yes, by a little bit (about 15%). By donating the stock, you avoid the 15% tax. If you were to sell the stock and donate the $200 anyway, you’d pay the 15% and then donate the $200, though some of it would come from other sources. By taking advantage of the stock appreciation, you can avoid the paperwork and tax of selling.

One mistake you may be tempted to make is in thinking that the donation only “costs” you $100 because that’s your initial investment. While that may make a little sense from a psychological perspective (as in you could convince yourself of that if you really really wanted to), it doesn’t from a financial sense. It doesn’t matter how much you paid for $100 because it’s worth $200 now, so you’re donating $200 you wouldn’t otherwise use for yourself. It’s as if someone swapped your $100 bill with a $200 bill (if one still existed).

The only rule you have to follow is that you need to have held the stock for at least one year (1 year + 1 day) in order for the it to be a “qualified appreciated stock.” If it’s held for less than one year, it’s considered a “ordinary income property” and your deduction is limited to the cost basis of the position, or the original $100 you invested in the above case.

Right now neither one of us holds anything except index funds (you can donate those too) in a brokerage account outside of our retirement accounts and those funds are all less than a year old so we won’t be taking advantage of it this year, but it’s certainly going to be an option in the future.

I was poking around Debt Hater this morning when I found her post about how she wasn’t deducting her charitable contributions to her church on the grounds that her donations (tithe) should be 10% gross, not net, and you shouldn’t be rewarded for doing it (the deduction). Here’s what she said:

My church provides every member with a receipt for the money they’ve given — in tithes and/or offerings — for tax purposes.

But I didn’t claim that on my taxes. It seems wrong to me. If you believe in tithing, you know that you tithe 10%. That’s gross, not net, because if you tithe net, then you’re paying the government before you’re paying God. So, if you get the money back through taxes, then you’ve gotten your blessing that way, and not God’s way, whatever way that may be.

The fundamental difference in thinking is probably with the perception of the deduction - DH sees it as the government giving you money (a reward) whereas I see it as you keeping your money. If you donate 10% of your gross income, you’ve actually lost 12.5% of your gross because 25% of that has gone towards the government. So if you’re paid $100, you donate $10, you’re actually down $12.50 because $2.50 of that $10 donated goes towards the government in taxes on income. The government has decided that donations are not considered income (in effect) so they let you deduct it, thus you get the keep the $2.50 because you gave away the $10 (the government is not rewarding you, you are merely paying less because you’ve in effect, out of your generosity, earned less).

Now, let’s say you still aren’t convinced that you should deduct it. If you deduct it, you can donate $12.50 instead of just $10 - thus not only are you not keeping it, you’re making your gift that much larger. Of course, now you deduct $12.50 on your taxes instead of $10 and the never-ending math cycle continues, but you get the idea.

As for the question of “Are you doing it to provide something to your community or are you doing it to hide money from Uncle Sam?” I don’t see how donating money is hiding any money because you don’t get that money back later.

DH, I think you should take the deduction.

What do you all think?

One of the options in the Thank You reward network, Citi’s cashback and reward network, is the ability to turn your points into donations to a set of charities on a 1 point to 1 penny basis so that 1000 points turns into a $10 donation. I always wondered whether you were allowed to deduct that as a charitable donation on your tax return and today I was treated to the answer in an article about reward credit cards (Smart Money).

The answer is no. The reason is because the charitable donation is actually made by the credit card company and not by you so you can’t deduct it. In order to deduct it, you have to make the contribution yourself so you should request the cash back and then make the donation.

This also holds true for any reward programs you might be a part of, outside of a credit card company, where you can convert loyalty points into a charitable contribution. That stinks but it does make sense from a tracking perspective. Don’t let it stop you from donating though, it’s just one extra step!

That’s Astin and Braden above and because of the hard work of Scott and his compatriots in putting together the Ghent Bar Tour, they’ll be well on their way to getting their wishes fulfilled. “Ashtin wished for a “safe room” so he can stay up all night playing without his parents worrying and Braden wished to go see Sponge Bob Square Pants!” The tour itself was was held a few weeks ago was a tremendous success and while they had planned to raise a mere $8,000, they instead crushed that goal and nearly doubled it, raising a stunning $14,000 for the Make-A-Wish Foundation of Eastern Virginia. I wanted to mention that Free Money Finance generously donated to the cause as well (checks were made out directly to the Make-A-Wish Foundation of Eastern Virginia, so if you all want to donate next time around you need not be concerned the funds will be used in any way other than for the kids).

It’s an amazing achievement and here are some thoughts from Scott himself:

By the numbers, the 2007 Ghent Winter Bar Tour on February 24th had 9 locations, 4 sponsors, 900 participants, 55 volunteers, and raised $14,000 for the Make-A-Wish Foundation of Eastern Virginia! So many participants registered in the last 48 hours before the event that the registration booth ran out of shirts and had to take down names and addresses to deliver them later. Lines formed outside many of the bars during the peak hours and crowds remained heavy throughout the night. It is not too far-fetched to think that this was probably the best night of business ever for many of these establishments. Hundreds of photos were taken at the event and can be viewed at the following link.

Never missing a beat, planning for the 2007 Ghent Summer Bar Tour is already underway. The event will once again take place the late afternoon and evening of Saturday, July 28th in lively midtown Norfolk, VA.

Maybe you’ll come out July 28th?