7 ways to make your year-end donations to charity count

Stack of bills wrapped with red bow

Along with holiday greeting cards and catalogs, your mailbox is probably stuffed with donation requests right about now.

It should be no wonder.

In 2011, individual charitable contributions topped $218 billion, and 40% of those gifts were made between Thanksgiving and the end of the year.

"There are a million charities in the U.S., and that makes it a competitive field for donor dollars," says Sandra Miniutti, CFO for Charity Navigator, an independent nonprofit organization that evaluates charities across the nation. "Donors need to do their homework before writing a check to make sure that their donations are supporting good causes."

From the bell-ringing Santa next to the kettle at the mall and supermarkets requesting money for local food banks to phone solicitations for homeless shelters and charities supporting veterans, the number of fundraising appeals can be overwhelming.

You don't want to be a Scrooge, but with so many worthy causes from which to choose, it can be hard to know where to allocate your charitable funds — and giving to everyone who asks will leave you broke.

Giving vs. income

Income Average annual contributions % of income
$50,000-$99,999 $2,047 6.0%
$100,000-$199,999 $3,361 4.2%
$200,000+ $14,088 4.2%
Source: The Chronicle of Philanthropy

But if you follow these 7 smart moves for how to give, you'll find ways to get the most bang for your charitable buck.

Smart move 1. Do your homework.
The biggest reason people give, according to Miniutti, is because someone asks. Don’t wait until you receive a fundraising call or a request in the mailbox to pull out your checkbook.

"Be proactive, create a plan instead of waiting for the requests to start coming in," she says.

Thinking about your charitable contributions before you’re flooded with requests makes it easier to research nonprofit organizations to make sure your donations to charity are being put to good use.

As a general rule, charities should direct at least 70% of contributions to programs, with the remainder reserved for fundraising and administrative costs.

Websites like CharityNavigator, CharityWatch and the Better Business Bureau Wise Giving Alliance rate charities for their effectiveness.

"It does take a little more work, but it’s not something you have to do every year; once you find a charity you like, you can continue donating to them over time," Miniutti says.

pie chart showing who benefits from charitable contributionsSmart move 2. Set a budget.

It’s tempting to get caught up in the holiday spirit and open your wallet in support of peace on Earth and goodwill toward men. But failing to put a limit on your holiday giving is bad for your own financial fitness.

"You should set a budget for making donations," says Bennett Weiner, chief operating officer for the Better Business Bureau’s Wise Giving Alliance.

Before the phone starts ringing and appeals start flooding your inbox, decide how much you want to give. Setting a budget ensures that you’re making smart donation decisions instead of writing checks to any group that asks.

While the average American donates 4.7% of their income to charitable causes, the most important consideration in setting a giving budget, according to Weiner, is choosing an amount that feels right to you.

"There is no ideal — you need to give an amount that you’re comfortable with," he says.

Smart move 3. Don't give over the phone.

Charities are exempt from the Do Not Call List, which means it’s almost impossible to stop the phone from ringing off the hook with donation requests this season. Even if the pitch tugs at your heartstrings, resist the urge to make a donation over the phone.

A lot of charities hire professional fundraising companies to solicit donations, according to Daniel Borochoff, president of CharityWatch, a nonprofit organization that evaluates charities.

"These companies often keep a significant portion of the donation, leaving less for the (nonprofit organization) to put toward its programs," he says.

Instead of letting professional fundraisers profit from your contribution, hang up the phone and give directly to the charity.

Using your credit card to make a donation through the group’s website or writing a check and dropping it in the mail ensures that the organization benefits from the full amount of your gift.

Smart move 4. Look out for red flags.

No one wants to donate to a fraudulent charity, but it happens all the time, Weiner says.

Scams are especially prominent during the holidays when spirits are high and shoppers are in a giving mood. While it’s tempting to succumb to emotional appeals of children who might not get visits from Santa, charities that use sad stories to solicit money hope you’ll give with your heart instead of your head.

"Nowhere in their appeal do they describe what they are doing to address the problem, or the descriptions of their mission are vague," Weiner says. "A reputable charity will offer specific information about their programs and their impact."

Pressure to make an on-the-spot contribution is also a red flag.

"The charities that take this approach want you to give immediately so you don’t have time to check them out," Weiner explains. "If you’re feeling pressured, walk away. You can always donate after you've had time to do some research."

Smart move 5. Keep track of contributions.

Top-rated charities

Africare Alaska Conservation Foundation
American Kidney Fund American Refugee Committee
Animal Welfare Institute Big Brothers/Big Sisters of America
Breast Cancer Research Foundation Catholic Relief Services
CARE Child Find of America
Christian Foundation for Children and Aging The Conservation Fund
Episcopal Relief & Development Fisher House Foundation
International Rescue Committee League of Conservation Voters Education Fund
Lupus Research Institute MAZON: A Jewish Response to Hunger
Michael J. Fox Foundation for Parkinson's Research Multiple Myeloma Research Foundation
National Council on Aging New Israel Fund & Signing Anew
Partners in Health Population Services International
The Rotary Foundation Save the Children
Scholarship America Semper Fi Fund
William J. Clinton Foundation
Source: Charitywatch.org; A+ rated groups

The IRS requires taxpayers to have proof of their charitable contributions in order to claim tax deductions.

For cash donations less than $250, you’ll need a receipt from the nonprofit with its name, date and amount of the contribution; the IRS will also accept canceled checks, bank records and credit card statements.

To receive a deduction for a donation of more than $250, the IRS requires written documentation. In other words, be sure to ask for a receipt.

In general, Miniutti suggests avoiding cash donations (dropping a few $1 bills in the church collection plate or Salvation Army kettle notwithstanding). The risk of an unscrupulous volunteer pocketing the cash is higher, and it could cause more problems at tax time.

"If you make a donation in cash, you have no record of that contribution," she says.

You might also give more thought to making a donation if you’re required to pull out your checkbook or hand over your credit card.

Smart move 6. Give small.

The coins you dropped in the kettle outside the mall might seem insignificant, but the Red Kettle Campaign raised $147.6 million in 2011, proof that a handful of quarters or a few $1 bills make a difference.

Instead of making a donation at each kettle you pass during the holiday season, make a single donation in a predetermined amount and decline requests for additional gifts.

"You’re not going to solve all of the problems in the world or alleviate all of the suffering, but your contributions can make a difference," Borochoff says.

You might also band together with coworkers to adopt a family during the holidays. If everyone in the office contributes a few dollars, you could provide turkey and all the trimmings and a few special gifts for a family in need.

Smart move 7. Consider alternate options.

Writing a check before Dec. 31 is not the only way to help a nonprofit organization and benefit from a tax deduction. Setting up a donor-advised fund is another option.

The funds, administered through firms like Fidelity and Schwab, are an alternative to direct donations.

Contributions made to a donor-advised fund before the end of the year are tax-deductible, even if the funds are not distributed to charities before the ball drops on New Year's Eve.

"These funds give you time to research charities and make decisions about how you want to give, but you get the tax benefits immediately," Borochoff says.

Donating appreciated stock is another way to support your favorite charity without dipping into your savings account. You receive a tax deduction for the full value of the stock and avoid capital gains taxes while providing essential funding for charitable work.

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