Smart Ways to be Generous

In the best-selling children’s book The Giving Tree, the story begins, “Once there was a tree ... and she loved a little boy" (Shel Silverstein, Harper Collins, 2002). Every day the boy would come to the tree to eat her apples, swing from her branches, or slide down her trunk ... and the tree was happy. But as the boy grew older, he began to want more from the tree, and the tree kept giving and giving.

This is a tender story, touched with sadness, aglow with consolation. The two central themes in this book are unconditional giving and unmindful acceptance. Shel Silverstein leaves some meaning of the book open to interpretation as it ends with nothing left of the tree but a stump. You could interpret it as: (1) the tree gave too much, (2) the boy (who became an old man) took too much, or (3) the tree was happy in giving until it could give no more. Or you might even have a different interpretation of your own.

Overall, Americans are somewhat generous (they give around 3% of their income to charity) and during the holiday season, their giving peaks. What better time than Christmas to put giving into practice in ways that are both generous and tax smart? Here are some ideas to get your family started:

Giving Tax-Smart

Donations to Your Local Church and Community
Your local church body helps to teach your family spiritual values, they run kids programs in the summers, provide food and clothing to orphanages, and send money to victims of natural disasters. It is critical that you get tax-deductible receipts for all donations to any non-profit organization, including homeless shelters, Goodwill, Salvation Army, and agency thrift shops.

Don’t Fund Overhead or Fund Raising
You don’t want your dollars going to pay fat salaries, fancy overhead, or excessive fundraising expenses. The Better Business Bureau’s (BBB) Wise Giving Alliance offers guidance to donors on making informed giving decisions through their charity evaluations, various "tips" publications, and the quarterly “Better Business Bureau Wise Giving Guide.” You can access this information by calling (703) 276-0100, going to www.give.org

You can ask them to mail you the various tip guides or read them online. These guides include information on:

• Charitable Giving
• Police and Firefighter Organizations
• Handling Unwanted Direct Mail From Charitable Organizations
• Child Sponsorship Organizations
• Direct Mail Sweepstakes and Charities
• Contributing Used Cars to Charities
• Tax Deductions for Charitable Contributions

Record Keeping
If you itemize, you’ll need all receipts for donations of $250 or more. If you give away more than $250 worth of clothing throughout the year, you should have saved all receipts for tax purposes. The money donated directly to a needy person is not deductible. It would be better to donate the amount, anonymously, to your church and have them send the donation to the family in need. Check with your tax specialist every year for your state and federal tax laws.

Starting Your Own Foundation
If you are fortunate enough to have a large gain from a stock or mutual fund that you have held for over a year, consider using it to become what is essentially your own “foundation.” For example, if you own $5,000 worth of stock that you bought years ago for only $1,000, then you can donate the stock by setting up a Fidelity Charitable Gift Fund account (call 1-800-682-4438 or go to www.charitablegift.org )

By doing this, you get an immediate $5,000 tax deduction and save having to pay taxes on the $4,000 gain. In the years to come, as that $5,000 grows, you instruct the company that manages your “foundation” where to donate the proceeds. Besides Fidelity, there are also charitable gift funds available thorough Vanguard at 1-888-383-4483 or www.vanguardcharitable.org or Schwab at 1-800-746-6216 or www.schwabcharitable.org .

Kid Philanthropists
You may want to allow your children to manage a donation in a predetermined amount ($25, $50, or whatever you have budgeted.) They get to research a variety of non-profit organizations and decide which one will receive their donation. Then donate the amount in your child’s name. You get the tax benefit, your child gets the thank-you note—you both feel good about giving.