So, as you go through your closets and drawers, and before you clean out the attic or basement, think about the new standards of charitable giving when it comes to donating your goods:

Charities Don’t Want Your Trash

Let’s be honest: In these tough economic times, the last thing a charity needs to do is haul your junk to the dump. In the past, even if they didn’t claim donated items on the tax return, some would bring items in poor condition to a charity. That saves money on the fees charged for disposal at the dump. Of course, the charity has to pay those fees — not to mention pay the gas costs for driving the items, and the cost of the hours spent sorting through your junk.

As a result of these increased costs, many charities are stepping up the way they vet donations. Additionally, many charities won’t come to your home to pick up larger items. You might be on your own when it comes bringing even the largest items to the charity’s location.

On top of that, realize that the IRS will only let you deduct your contributions of goods that are in “good” or “better” condition. “Fair” condition just doesn’t cut it if you want that tax deduction.

IRS Expects You to Keep Records

If you do want to donate goods to charity, and take the deduction, you need to keep good records. Get a receipt from the charity. The charity won’t actually put a dollar amount on the receipt, but it will list the items you donated. That way, you have a record that you actually made the donation. The IRS doesn’t need to see the receipt — unless you are audited.

Keep all of your receipts for goods with your copy of your tax return so that you have the records. The total amount of your donations belongs on Schedule A. Once your total non-cash donations reach $500, you will need to fill out a Form 8283. You will also need to get a receipt for single item donations that have a value of between $250 and $500.

You can claim market value for your used items. This means that you claim your deduction for what the item is worth on the market — not what you paid for it. If you need some help adding up your non-cash donations, Bankrate offers a handy group of worksheets that can help you estimate the value of some of the items you plan to donate. You can fill in the worksheets, and keep them with your personal records (no need to send them to the IRS unless you are asked to).

(Photo: osseous)

Charitable Giving: Donating Your Stuff from personal finance blog Bargaineering.com.

Charity Navigator is my go-to charity rating site whenever I want to learn more about the effectiveness of a particular philanthropic organization. They do a fantastic job of reading through the financial statements and boiling it down to metrics that matter. When it comes to donating, you want your dollars to go as far as possible. I don’t want to have fifty cents of every dollar going to fundraising, I want 80 cents to go to the mission and maybe 20 cents to the “other stuff.” (even that seems high to me)

How to Use Charity Navigator

The first step is to look up the name of the charity and read it’s statistics. I always look at Organizational Efficiency first because it tells me where the money goes. Take a look at Oxfam America – 79.8% goes towards program expenses, which I see as the charity’s mission. 6% go to the administration of the organization and 14% goes towards raising more money. Is that good or bad? It’s hard to tell without a basis for comparison. Charity Navigator gives them a three-star 51.07.

Another similar charity is Heifer International which sports a 75.9% towards program expenses, 6.2% to administrative and 17.7% to fundraising. Heifer International gets a three star, 52.68 rating; so comparable (incidentally, Heifer International raises 2x as much money as Oxfam).

There is a lot more to charities than Organizational Efficiency, though that’s what I like to look at first. It appears that the two organizations are similar and with this information I make my donations to Oxfam (slightly more of my money goes towards program expenses).

Go Outside the Top Lists

If you have a direction you want to go with your donation but aren’t sure where to go, it’s easy to look at the “top charities” in a particular area and donate to one of those. I recommend digging a little deeper and finding smaller charities that may be struggling in these tougher economic times. Avoid organizations that don’t pass your requirements based on their Charity Navigator ratings but don’t stick with the top lists because there are plenty of hard working charities who need your assistance.

Go Local for Impact

If you can, try to work with local organizations to have an impact in your community. We donate to a local food bank (Maryland Food Bank) so that we can help local Marylanders in a tough spot. Going local works for charities as well as it does for produce! (it helps that the Maryland Food Bank has a four star, 60.34 rating and 91.2% of dollars goes towards program expenses – I like a charity that sports those numbers).

Beware Red Herrings

When reading the reports, be careful about red herrings. Many times people point to a high paid CEO as being a bad thing when they don’t recognize the level of responsibilty they have may. That’s why reports like the “10 highly paid CEOs at low-rated charities” is a more effective list than one simply of the highest paid CEOs. The CEO of the Hoag Hospital Foundation is paid $403,285, or 2.97% of expenses. The CEO of the American Red Cross is paid $446,867, which is more than the CEO of Hoag Hospital. The difference is that Gail J. McGovern’s, CEO of the American Red Cross, salary is only 0.01% of expenses. Salary alone isn’t a good indicator because we can be talking about two vastly different organizations.

So, spend a few minutes before the next time you go to make those donations to maximize their impact!

Use Charity Navigator to Research Charities from personal finance blog Bargaineering.com.

However, there are a handful of steps you can take and my favorite of them all is to pick out a few charities to support. You have to be sure to follow the documentation rules for tax purposes but it can pay dividends both financially and spiritually. I won’t get into the mechanics but each year we donate some money to a half dozen charities we’ve supported in the past and find a few new ones to support on a smaller level.

Anytime you can give, whether it’s time or money, the organization benefits. It can be $10, $100, or $1,000 but the important part is to remember those who are working hard to provide more good in this world and help support them when you can.

What’s your favorite year end tax deduction? If it’s charitable giving, what organizations do you support and how? It’s always fun to learn about smaller organizations doing great work at the local level.

Your Take: Favorite Year End Deduction? from personal finance blog Bargaineering.com.

My friend Scott has been running the twice-annual Ghent Bar Tour for the last few years and I’ve had the great pleasure of being a sponsor every time he’s done it. He’s raised tens of thousands of dollars for the Make A Wish Foundation and Hope House Foundation. This past summer, they raised nearly $12,000 in one of the worst recessions we’ve seen in decades. That’s a testament to Scott, his team, the 75 volunteers, and all the generous sponsors who kicked in to support such a worthy cause.

Also, if you’ll be in Vegas next week, either for Pubcon or just for fun, shoot me an email and we can hang out.

My Favorite Charity: Ghent Bar Tour & Hope House Foundation from personal finance blog Bargaineering.com.

Here’s what their microprint says:

FREE 3 oz. Make-A-Wish® Creation™ with a Donation

Donate and receive a 3 oz. sample of Jack’s Creation served out of a ready-to-love pan in a Like It™ Cup. Valid only during published date and time. While supplies last. No substitutions. Limit one per customer. An estimated 85 percent of all donations in September will benefit the Make-A-Wish Foundation®. For more information about the Make-A-Wish Foundation, visit wish.org. ©2009 Cold Stone Creamery, Inc. All rights reserved.

The flavor mix this year is Sweet Cream ice cream mixed with brownie, sprinkles and caramel.

Use their Store Locator to find the nearest location.

(Photo: yanec)

Free Cold Stone Creamery Ice Cream with Donation – Make A Wish Foundation from personal finance blog Bargaineering.com.

I personally never respond to a solicitation. It could’ve come in the mail, through a phone call, or an email; I ignore them all. It’s not because I’m a heartless person and it’s not because I don’t trust the solicitation, it’s that I prefer to go directly to the charity. I don’t want to write a personal check and put it in the mail. I don’t want to give any sensitive information across the phone and I certainly don’t trust email, with all the scams and phishing attempts surrounding those. I know the charities we like to support and we generally go directly to their websites to donate.

However, given the tumble the stock market had over the last year, a lot of charities are turning to solicitations to get more donations because their trusts and endowments are hurting. This has opened up an opportunity for scammers and thieves, so the FTC has offered up some good information to help you combat that.

If you recently received a phone call from a “charity” and are considering donating money, I recommend you read the FTC’s Charity Fraud website for tips on how you can protect yourself and the people you’re helping. When you give money to a scammer, it only empowers them to keep on ripping people off. As more people get burned, they start avoiding charities and charities that support the people the scammer said he or she was collecting for. In the end, it’s the people you intended to help that get hurt the most.

I also wanted to spotlight two particularly poignant scams going on right now and how to protect them. The first involves scammers pretending to collect donations to support the troops, as in vets, active duty, or their families. The second is the result of an enforcement sweep of scammers that pretended to collect donations for police, firefighters, and veterans.

It’s great to help those who are in need, but not if the money is going into the pocket of a scammer.

Beware Charity Fraud from personal finance blog Bargaineering.com.

18 struggle to live on US$ 1.00 per day or less…
53 struggle to live on US$ 2.00 per day or less…

(you can watch a larger version directly from the site itself)

Appreciate What You Have, Make The World Better from personal finance blog Bargaineering.com.

Donating “stuff,” be it your car, your clothes, or something else, was one of the ten year end tax saving tips and you still have time to do it. Even if you don’t itemize, consider doing it just so you can clear yourself of some clutter. Your donations let Goodwill or the Salvation Army earn extra money to fund their operations and it provides affordable items for purchase from their customers.

The trickiest part about the entire process is how do you assign a value to the items you’re donating? Chances are the IRS will never come knocking on your door and asking how you valued your clothing because it’s simply not going to be a lot of money involved. However, this doesn’t mean that you can shirk on documenting because if they do show up and you don’t have records, they may invalidate the donation and you could find yourself paying interest and fees!

How To Donate & Document Donated Clothes

• Gather up everything and create a list of items: Simply create a list of all your items and include as much information as possible. Anything you want to donate has to be in “good” condition or better. You can put the brand and type of clothing (Stafford button down, American Eagle polo, Gap jeans, Ann Taylor sweater), its condition, the estimated purchase price and date (if you can remember), and the fair market value at the time of donation. The more information you have down, the better. If you think anything you list sounds unbelievable, take a picture (the IRS may not believe you’re donating a $200 suit in good condition, for example)
• Rememebr to get a receipt: Whenever we go to the nearby Salvation Army, we just give the bag(s) to the person working the bench, he or she tosses it in a huge pile, and then they hand us a pre-signed blank receipt. Some places won’t give you a receipt for small donations but I would always get one and fill it out with as much information as can fit, then just refer to another page. Some people recommend putting something vague (because you have better records) but I put a listing (3 shirts, 2 pants, loafers, etc) of actual items and then refer to another document with specifics.
• Worth more than $500? If you donate more than $500 of clothing, then you’ll need to fill out Section A of Form 8283 Non Cash Charitable Contributions. Don’t let the form scare you, you won’t need an appraisal unless you donate more than $5,000 – which is a lot of used clothing.
• Claiming the deduction: Last step is to remember to claim the deduction on your tax return! You’ll always list it on Schedule A of the 1040 but if you do your taxes with a software product (highly recommended), they’ll just ask you as you fill it out. They may even offer guidance on valuation.

Determining Clothing Fair Market Value

And… here’s the tricky part. By definition, the fair market value is the reasonable price that a regular person would pay for that item. Imagine if you saw that item at a garage sale or a used goods market, how much would you pay for it? That’s the fair market value… you see how ambiguous it is?

Fortunately, there are plenty of resources available to help you determine how much your stuff is worth. The Salvation Army has a valuation guide for everything from clothing to appliances, children’s items to furniture. It’s pretty comprehensive and includes a range so you can decide, based on condition, how much it’s worth. Goodwill has a similar valuation guide in PDF form.

Finally, if you’re an IRS publication junkie, you can always check out Publication 561, Determining the Value of Donated Property, and Publication 526, Charitable Contributions, for more specifics, scenarios, and other useful tidbits boringly explained.

However you value your old stuff, remember that donating it in the first place is more important than not donating because you aren’t sure how to handle the deduction. In the end, it won’t save you a ton of money regardless and it’ll make life easier for some charities and perhaps some individuals.

(Photo: roadsidepictures)

How to Value Your Clothing Donation from personal finance blog Bargaineering.com.

Here in the United States, there is defined “poverty line” (also known as a poverty threshold) published by the Census Bureau for statistical purposes and the Department of Health and Human Services for administrative purposes. That poverty line is used for a variety of benefit calculations and for 2008 it’s set at $10,400 for an individual in the 48 contiguous states. $10,400… that’s it. That’s $866.67 a month.

The federal minimum wage is currently set at $6.55 an hour (effective July 27th, 2008; though increasing to $7.25 an hour July 24th, 2009). If you take a “standard” 2,000 hour work-year (though most work far more to subsist), that’s $13,100 – or a mere $2700 above the poverty line.

In a world where CEOs get hundreds of millions of dollars, can’t we as a society do something about it?

Don’t worry. This isn’t a post about hating CEOs, celebrities, athletes or anyone else who succeeds, public record has shown that many are doing a tremendous amount in terms of giving back. What I’m mean is that we should do more to help our fellow American. Consider donating to your local food bank. With Thanksgiving on the horizon and the holidays coming up, food banks will be under a tremendous amount of strain and they need our help.

The $10 you thought about donating to Barack Obama or John McCain’s presidential campaign? Send that to your local food bank, it will directly impact several lives in your community. The $50 you wanted to send to the American Cancer Society? Consider a food bank or soup kitchen. You aren’t worried about cancer if you don’t know where your next meal will come from. I know the recent financial turmoil has probably made you reconsider your charitable contributions this year, that’s perfectly normal. You are not alone. However, you don’t have to donate $100 or $50 or even $10 to make an impact.

$5 can go a very long way.

Find a local food bank.

Fight Poverty: Donate to Food Banks from personal finance blog Bargaineering.com.

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?

Fidelity Charitable Gift Fund from personal finance blog Bargaineering.com.

Let me back it up a little bit for those unfamiliar with the OLPC and the XO Laptop. Back in 2002, MIT professor Nicholas Negroponte went on a mission to produce the $100 laptop. The purpose was to provide cheap technology to the children of developing nations in an effort to raise them up. The XO laptop was created out of that vision and while not quite $100, it’s very close ($200!). For more about the OLPC, you can visit laptop.org.

The specs on this little laptop are pretty good for a $200 unit and I signed up to get one (and give one), if only to say I was involved in something that I think is very noble. While it’s not towards curing cancer or granting a wish, it’s certainly going to change people’s lives and I hope this thing explodes. Will you help?

One Laptop Per Child Offer from personal finance blog Bargaineering.com.

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!

2007 Summer Ghent Bar Tour – Let’s Raise Some Wishes! from personal finance blog Bargaineering.com.

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.

Donate Odd Lots of Stock from personal finance blog Bargaineering.com.

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.

Donating Stock To Charity from personal finance blog Bargaineering.com.

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?

Morality of Deducting Charitable Contributions from personal finance blog Bargaineering.com.