Monday, December 29, 2008

How you can save money by giving more to charity in this time of great need

For people who are unlikely to itemize deductions on their taxes every year, bunching your deductions into a single year is often a very effective strategy.   The general idea is that you try to combine as many tax-deductible expenses into a single year as possible in order to get maximum benefit from itemizing, and then the following year you can go back to the standard deduction.  This can work with all sorts of deductions, but it's especially effective for charitable donations because there's so much flexibility in when you choose to give.  

And now more than ever is a good time to give a double dose of donations to your favorite charities.  Donations are down, thanks to the economy's effect on the individuals and businesses who usually do the giving.   Charities are also getting fewer foundation grants, because foundations' giving is usually a percent of the total assets in the foundations' endowment (a minimum of 5% a year) and most foundations have seen their assets shrink significantly as a result of stock market declines-- even the huge Bill and Melinda Gates Foundation is cutting back its planned grant-making for 2009.   Charities are also having a harder time borrowing money, like everyone else.   Yet simultaneously, many charities are dealing with higher demand, particularly
if they're serving the needy-- for example, food pantries nationwide are seeing an average of 30 percent higher demand, up to 60 percent or more in some places.   Times are really tough for many of these charities; making bigger donations can make a very big difference.

(And there are other benefits to doubling up on charitable donations, too, especially if you like recognition and thank-you gifts... bunching can turn your usual $50 donation into a $100 donation or a $500 donation into a $1000 donation, which can snag you extra goodies or VIP treatment!)

If you're concerned about your own finances and don't feel able to give much more in cash to charities right now, donating goods (like clothes, toys, books, cars, computers, and more) increases your deductions too, so now could be a good time to gather the things you've been meaning to give away and drop them off before it becomes 2009.  (Here's the details from the IRS on what receipts you need and how to figure the tax-deductible value.)  If you're driving to volunteer or drop off goods, you can deduct 14 cents per mile.   (And of course, regardless of the tax implications, these organizations will appreciate your volunteer hours and donated goods even if you can't afford to give much in cash.) 

(You can also donate appreciated stock and deduct the full value without paying taxes on the capital gains-- yes, stocks that're worth more than when you bought them are harder to find these days, but if you have them it can be a very good deal to donate the stock rather than selling it and making donations in cash. The Motley Fool has some suggestions of stocks with positive 5-year returns.)

As for me, I'll be itemizing my 2008 taxes for the first time-- it never made sense when I lived in Illinois, with no mortgage and a 3% state income tax, but now my DC taxes are high enough that combining those with my annual giving budget gives me a total right around the standard deduction.   If I gave my budgeted amount in both 2008 and 2009, I wouldn't gain much from itemizing and would probably just take the standard deduction.  But if I accelerate my 2009 giving and do it all before the end of 2008, I'll end up significantly higher than the standard deduction, which means I save hundreds of dollars on my taxes in 2008 (and can still take the standard deduction in 2009, so that tax situation stays exactly the same.)

This has been my plan for months-- since well before the economic downturn accelerated-- but it's especially satisfying to know that my larger-than-usual gifts come at a time when they're especially needed.  Now here's hoping that by the end of next year, when I'm giving little or nothing because I did it all in 2008, things have recovered enough that non-profits are on the upswing...

No comments: