There's Still Time for Charitable Giving (2009-12-21)

There's Still Time for Charitable Giving

(2009-12-21) by David John Marotta

The markets are up, and yet most nonprofits are still struggling financially. If you are charitably inclined, there's still time for end-of-year giving.

Charities are hit especially hard during tough economic times. They face reduced giving and often greater needs. They must find supporters who will donate more to offset those who will give less.

Charity freely offered is a virtue distinctly more valuable than any government program funded by taxes, which are an obligation and a duty. With no resources of its own, the government can only take the production of others and redistribute it. Political support for government entitlement programs is like being generous with your neighbor's credit card. Those who seek to be charitable must first produce more than they consume to have something to share. Only when you give of your own resources is it truly charity.

Americans are a generous people. But we don't like to pay taxes. Instead of giving cash, there are two additional ways you may be able to give so more of your money goes to charity instead of the IRS.

First, giving appreciated stock allows you to donate more generously. By contributing appreciated stock directly to charity, you can avoid the 15% capital gains tax. For example, if you sell $1,000 worth of appreciated stock, you will have to pay a 15% tax on the gains. If most of the stock's value is appreciation, the tax you owe will approach $150, leaving only $850 for charitable giving.

But if you transfer the stock directly to charity, you can take the full $1,000 tax deduction, and the organization will not have to pay any taxes when it sells the stock. By giving stock, you can save on capital gains taxes and can make a bigger gift.

Second, if you are age 70 1/2 or older, there is another powerful way to give. This year you are allowed to make tax-free qualified charitable distributions (QCDs) directly from your IRA account.

Normally you would be obliged to take the distribution, increase your adjusted gross income (AGI) and then gift to charity as a charitable deduction. The difference may not be obvious, but it's there. Many calculations in the tax code are tied to your AGI. Increase your AGI and you increase your phaseouts and other additional taxes. Take $100,000 from your IRA and give it to charity, and the tax code still punishes you despite your generosity.

The QCD provision allows you to gift directly from your IRA. Although you won't get a deduction, it doesn't matter because it won't count as AGI in the first place. Each account owner may give up to $100,000 in 2009 without having to pay income tax on the distribution. Gifts from IRAs are also an excellent estate-planning tool, if you are interested in making a large gift to reduce the size of your estate. The details are complex, so contact your tax professional or financial planner to make sure you are complying with the IRS rules.

If fear and worry about your own investments are eclipsing your charitable nature, there's help. Find out the state of your own finances, so you are confident you can afford to be a donor rather than a recipient of charity.

Not knowing is sometimes worse than finding out. Fear drives out emotions like kindness and compassion. And such angst may block purposeful giving from the heart. As St. Paul admonishes, "Each man should give what he has decided in his heart to give, not reluctantly or under compulsion, for God loves a cheerful giver" (2 Corinthians 9:7).

With the unemployment rate currently at 10.2%, this is an especially good year to focus on organizations that support families in financial need. Although everyone has been affected, some families have been singularly hurt and are in need of a little extra help.

Contributions this year could also determine the very survival of some nonprofits. Organizations, especially those without endowments, have been especially strapped this past year. Although the fundraising letters of many organizations can often seem desperate and dire, this year they are most likely to be true.

If you want to know if your gifts to charity are being used as well as they could be, you are not alone. Four of five Americans worry that the charities they support are not stewarding donations well. Fortunately, checking up on them is simple.

Because charities don't pay taxes, Form 990 serves only as an informational return. But for the curious donor, it provides a benchmark to compare the relative health of charities. On the form, you'll find data about how much of your donated dollars go to overhead versus program services. The form also includes facts on revenue streams, general expenses, wages paid to key employees, plus a list of board members.

Although charities are required to send you a copy of their 990 upon request, the fastest way to locate a free copy is to go online. GuideStar.org and FoundationCenter.org both provide free access to 990s as well as search tools to find other charities in your state or city.

Management and fundraising is expensive. Do you ever wonder how much of every dollar you donate actually goes to such overhead costs? Form 990 provides a clear breakdown of funds spent on overhead and fundraising compared to expenditures on program services.

When examining a charity's spending, experts suggest that 65 cents (or more) of every dollar should be spent on program activities. However, due to the type of service the charity performs, more or less may be allocated to program services. For example, an art museum typically has higher operating costs because of its specialized facilities and security requirements and may allocate as little as 50% of the overall budget to program services. A food bank, in contrast, might be able to devote more than 90% of gifts to feeding the hungry. The key here is to compare similar charities to each other.

A host of online tools can give you additional insights about the nonprofit in question. Charity Navigator, at www.charitynavigator.org, lists ratings for charities based on their financial health. And the Better Business Bureau Wise Giving Alliance measures public charities against its 20 standards for charity accountability. Their analysis of nearly 1,600 national charities can be found at www.give.org.

When you give to charity, you make an investment. By doing a little homework, you can be sure your gift gives you the best possible return on your investment. And although certainly giving is its own reward, giving wisely increases the blessing.

from http://www.emarotta.com/article.php?ID=368

Marley's Ghost Was Haunted by Regret (2009-12-07)

Marley's Ghost Was Haunted by Regret

(2009-12-07) by David John Marotta

"Marley was dead." That's how Charles Dickens's "A Christmas Carol" begins. Jacob Marley, dead exactly seven years to the day, is the real ghost in the story. We see Ebenezer Scrooge's life in light of his partner's death. Although the way the two men approached their finances may seem identical, when we take a closer look, subtle but important distinctions emerge.

In his book "Why Smart People Do Stupid Things with Money," Bert Whitehead describes different financial personalities. He depicts a "miser" as someone who is strongly motivated by fear but has a natural inclination to save.

Whitehead maps financial personality on two different scales. The first measures people's tendency toward greed or fear. As a miser, Marley is motivated by fear (low risk acceptance), whereas his longtime partner Scrooge tends much more toward greed (high risk acceptance). The second scale measures an individual's tendency to save or spend. Here both Marley and Scrooge are practiced savers.

When two portly gentlemen stop by Scrooge's office soliciting charitable donations, they discover that Marley has been dead for seven years. One comments, "We have no doubt that Marley's liberality is well represented by his surviving partner." The narrative continues, "It certainly was; for they had been two kindred spirits."

Liberality cannot come from someone who is personally fearful. Distrust drives out emotions like tenderness and compassion. Scrooge confirms this condition in Marley as he looks through his ghostly form and remembers ironically that it was said of Marley he had no bowels. Marley had no empathy for others because he was too anxious for himself.

To Americans celebrating a traditional credit card Christmas, the distinction between a scrooge and a miser may seem insignificant. Both types are cold skinflints who don't spend money to make merry at Christmas. Although their tendency toward frugality may match, however, their investment philosophies do not.

"Misers," Whitehead writes, "are champion savers, but they have little to show for it. They are fearful about investments, even straightforward ones that are simple to explain and understand. At the most extreme, these are the people who keep all their money in a mattress or cans buried in the backyard. More commonly, people with miser-like tendencies hoard their money in bank accounts and Treasury bills."

Unlike scrooges, misers are fearful, a trait they share with Whitehead's other personalities, bon vivants and spendthrifts. All three types worry there won't be enough money. Spendthrifts spend it before it's gone; bon vivants spend it, but only on themselves; and misers hoard it in case they need it later. However because risk and return often go together, playing safe generally does not lead to building real wealth. Wealth is not just what you save; genuine wealth grows from what you save and invest.

Marley may have been a good man of business, but Scrooge was such an opportunist that on the day of his partner's death he "solemnised it with an undoubted bargain."

Scrooge lives in Marley's former chambers. But where Marley saw security, Scrooge envisions opportunity. Scrooge stays in three of the rooms and rents out the others, both above and below his quarters, as offices. He even leases the cellar to a wine merchant.

Misers like Marley don't like to take any such chances. They prefer investments that are touted as secure and come with guarantees. For example, fear often motivates misers to buy life insurance as an investment. Salespeople tout the safety of their company and switch fluidly between guaranteed returns and rosier projections or illustrations.

Misers also buy annuities, which they believe are tax shelters or will guarantee an income for life. With immediate annuities, misers can be so enamored by the annual lifetime return of 6%, they fail to notice the guaranteed 100% immediate loss of their principal. They also generally don't factor in the incredible drag of inflation and the devaluing of the dollar.

It can take a while before misers understand the long-term effects of their actions. They can be shocked to find their financial institution bankrupt, their ultimate taxes higher than necessary and their cumulative return less than savings bonds.

Misers may sleep well tonight, but they won't eat well in 20 years. They are relieved not to have been invested over the past 14 months, although balanced portfolios have shown gains. They are especially glad not to be invested in emerging markets, even though that's the asset class with the highest gains. They are content earning less than 2% while the government devalues the dollar with inflationary spending.

Not taking any risks is a recipe for long-term regret. Some risks are worth taking in life, including calculated financial risks. The danger of a miser's long-term regret is easily avoidable. The solution, of course, is financial education.

There are many worthy long-term investments. But misers worry that much of the financial world is just trying to part them from their money. They need someone who sits on their side of the table to teach them. Misers have learned to love saving their money. Now they just need to learn to love investing. And misers can be very quick learners.

A second regret of misers, and the true moral of Dickens's story, is saving money without any purpose. Marley dies having translated very little of his money into anything of value. Dying having spent the smallest amount is even more meaningless than dying with the most. At least Scrooge invested his money. And after seven years he had probably doubled it.

Perhaps one reason why misers are tightfisted is because they haven't learned how to handle investments. They can't share from an abundance of wealth because they've been too cautious in handling their finances to afford such largess.

Neither Scrooge nor Marley ever asked what the money was for. Marley held on to his out of fear of not having enough. In contrast, Scrooge saved and invested, so he was more able to look beyond his counting house when the spirits haunted him. Marley, looking back on his life, was the first to warn Scrooge, "The dealings of my trade were but a drop of water in the comprehensive ocean of my business!"

We might well feel sorry for Marley. He did nothing wrong. He just wanted to be left alone. His sins were of omission, not commission. To paraphrase the words of the Book of Common Prayer, it wasn't that he did the things he ought not to have done. It was that he left undone the things he should have done.

As Jesus preached, Marley was like "the one who received the seed that fell among the thorns . . . who hears the word, but the worries of this life and the deceitfulness of wealth choke it, making it unfruitful" (Matthew 13:22).

Marley wanted to be left alone to deal with his business. But after death he laments, "Mankind was my business. The common welfare was my business: charity, mercy forbearance, and benevolence, were all my business." Marley saved money but never understood why.

Failing to ask what the money was for left Marley in death with "No rest, no peace. Incessant torture of remorse." And time matters for both investments and our lives. In the long run, we all will be gone from this life, so we must make the most of time, both for our investments and for our lives. The two, it turns out, are inexplicably intertwined. Our wealth is just a placeholder for what we value.

Marley tells Scrooge bluntly in the first chapter of the book, "Any Christian spirit working kindly in its little sphere, whatever it may be, will find its mortal life too short for its vast means of usefulness." And in the final chapter, Scrooge has learned the lesson and found the joy it brings. Having found his affections changed, he finds that "everything could yield him pleasure."

Work kindly in whatever sphere God has placed you. Know what the money is for. And remember Marley's admonition: "No space of regret can make amends for one life's opportunities misused!"

from http://www.emarotta.com/article.php?ID=366