Look for charities that are efficient, effective and innovative. Use tax-smart strategy and stay clear of crowdfunding scams.
In the wake of natural disasters, let your giving be guidedby both your head and your heart. Letting raw emotion drive your charitable giving can lead you to be less effective or even counterproductive.
Many people give to the first charity they think of, usually a big-name organization such as UNICEF or the Red Cross. While there’s nothing wrong with either organization, they may not be the optimal choice. It’s wise to expand your horizons.
Look at efficiency, effectiveness and innovation when evaluating a charity.
How well does the organization manage the donations it receives? How well does it address the issue it is designed to combat? Compared to other organizations working on similar issues, does it do the same thing better or is the work different?
Consider how much of the charity’s inflow goes to administration and overhead. Charity Navigator, GiveWell and GuideStar are websites that provide a useful overview of charities, especially in conjunction with each other.
Many experts say donating to local charities in a disaster area does the most good. Local groups can spring into action without having to transport people and resources into an area still coping with the aftereffects of a disaster. Smaller organizations tend to rely more on volunteers and often spend less money on fundraising, allowing donations to go further.
If you’re not sure where to start, a quick online search for the name of the disaster in question and ways to help, will bring you to lists compiled by reputable news outlets. The Federal Emergency Management Agency (FEMA) also offers suggestions.
You can use these lists as a starting place, but be sure to check for a solid track record of effective and efficient aid before contributing.
Be wary of crowdfunding
While many of the calls for help from disaster victims on sites like GoFundMe are real, others are from people taking advantage of strangers’ generosity.
All else being equal, give to a vetted charitable organization. Your gift will go further, and you can be sure it will get to people in need.
Donating tangible goods like clothes or bottled water may seem helpful, but you should resist that impulse. For anyone who isn’t near a disaster area, and even for most who are, donations of cash or securities are almost always the best choice.
Texting a donation, while convenient, is usually not the best method, because charities have to wait on the phone company to release the money. Donating directly via a charity’s website will send the money to its destination quicker.
Uncle Sam can help pay for it
If you itemize deductions, gifts to charities recognized by the Internal Revenue Service are tax-deductible, and besides saving federal income tax, gifts also often reduce state income tax.
Always keep a receipt of all donations in case you’re ever audited.
Consider giving appreciated securities, such as shares of stock or mutual funds. Such a gift can stretch your generosity further because you’ll avoid the long-term capital gains tax on the appreciation. Giving an appreciated security directly allows you to transfer extra value.
Never sell an appreciated security and donate the proceeds after paying tax.
If you want to donate any security that’s lost value, do the opposite. Sell it, take the capital loss and donate the proceeds. You’ll cut your tax from both the capital loss plus the amount you donate if you itemize.
Many charities receive a great deal of support right after a disaster, but find that it trickles off in the long weeks and months of rebuilding.
Consider setting a calendar reminder in a month or two to donate again when the need may be even greater. Or consider making an automatically recurring donation monthly or quarterly.
Rebecca Pavese, CPA, is a financial planner and portfolio manager with Palisades Hudson Financial Group’s Atlanta office.
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