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Guidelines for Giving

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar.

If you are in the giving mood this holiday season, you should know that charity gifting can do more than just give you that nice feeling inside. Here with me to offer some details is Morningstar's Christine Benz, director of personal finance.

Thanks for joining me Christine.

Christine Benz: Jason, great to be here.

Stipp: So giving for the sake of giving is a great thing, but there is also some benefits to giving to charity for your portfolio. Can you outline some of those?

Benz: Well, one of the key ones, Jason, is that assuming you give to a qualified charity, you'll be able to receive a tax deduction on your contribution, so that's a big plus. And then if you are gifting highly appreciated securities, so securities that have gone up a lot since you've purchased them, you will be able to not just receive the tax deduction but also not have to pay taxes on that appreciation. So that's a big plus.

And finally, if you are making a charity the beneficiary of your IRA, the big advantage there is that when the charity receives that donation from you, it will not owe taxes, whereas your heirs probably would, and they may be taxed at a very onerous rate. So a couple of big benefits right there for charitable givers.

Stipp: Gifting can really gives you back in the form of some tax savings.

But there are some rules that you have to keep in mind about gifting, and you mentioned making sure the charity is one that is allowed. Can you give some more details on that, and also some of the other things you really need to keep in mind as you're giving to charity?

Benz: Right, so first check up on whether that charitable contribution is deductable, and the IRS has a form that it updates quarterly, its IRS Publication 78. Just check up and make sure that that charity is eligible. The key rule of thumb is that political contributions are not deductible. Donations to individuals are not deductible. And finally, even though donating time can be really valuable, that's not deductible on your tax return.

The other thing to keep in mind, Jason, is making sure that you have the right documentation when you are making those deductions. So, first of all, you need to be an itemizer; you need to be someone who itemizes deductions on your taxes. But also you need to save receipts; you need to save canceled check. And then if you are gifting property, so actual stuff versus cash or securities, you need to have some additional forms of documentation, particularly if there is a high dollar amount attached to that property. So, check with a tax person to make sure that you're really minding your P's and Q's when you're trying to deduct those kinds of things.

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Stipp: Around this time of year, one thing that charities often offer is a dinner or some sort of event to the givers. There's a few things you have to keep in mind from that front as well for those particular kinds of events.

Benz: That's a great point, Jason. So a lot of times charities will throw nice parties or galas, or give you some goodies to make a contribution. So whether it's a tote bag or a magazine subscription or whatever. But you do need to subtract the fair market value of whatever you got in exchange for making that contribution from your deduction; the whole amount isn't deductible. So if you pay a $1,000 for that great dinner, the value of that dinner may have actually been $300, so your real deduction is only $700. It's still worthwhile.

Stipp: The charities can give you information about the fair market value.

Benz: Yeah, they should have that all figured out.

Stipp: OK. The last thing, Christine, as I am thinking about all the benefits of giving, what's a way that I can make sure I am giving to the right organization? There is a lot of charities out there. If I want to make sure my money is going the farthest toward my given cause, what steps should I take?

Benz: Well, one of the great things to do is do a little bit of research on the Web. There is a website called Charity Navigator, and it actually culls the organization's documents that they provide to the IRS, and it provides you some background on the organization's efficiency, how much they are paying their top people--maybe they are worth it, maybe they are not. But you can see actually how much of that charity's dollars are going to the end beneficiaries. And you can do a little comparison work.

One thing I would point out is that some of that information is not super up-to-date, so there are some limitations, but it's a good starting point for researching a charity that you may already like.

Stipp: Well, Christine, thanks so much for joining me today and for your tips on charitable giving.

Benz: Thank you, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.