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Holidays a good time to evaluate first-time donations

McClathcy-Tribune Information Services

January 5, 2015


There is a first time for everything, including a first-time donation to a charitable cause or organization.

The holidays tend to bring requests from nonprofit organizations for charitable gifts, but people who have not donated to charities in the past may be unsure of which ones to choose, how much to give, or how they will benefit from giving money away.

"If Ebenezer Scrooge were alive today, he would do charitable giving because he would understand the tax benefits involved," said Robert Fragasso, chairman and chief executive of Fragasso Financial Advisors in Pittsburgh. "There are several ways to give, all of which involve a potential tax deduction if you itemize your tax return and meet some other criteria. That means most middle class individuals and couples can gain a tax benefit."

Americans gave $335.17 billion to charity in 2013, the latest year data is available, according to Giving USA Foundation and the Indiana University Lilly Family School of Philanthropy.

It has long been assumed that people make most of their donations between Thanksgiving and New Year, but researchers from the two organizations have found that donors give only slightly more during that period than they do the rest of the year. Half of donors in 2013 gave to the same charities at holiday time as they did during the rest of the year, but 47 percent gave to charities during the holidays they generally didnít support at other times.

Large national organizations such as the Red Cross and Salvation Army have name recognition, but donors may want to consider a charity based in their region.

Chris Chaney, vice president and a financial adviser at Fort Pitt Capital Group in Green Tree, Pa., said a successful giving experience relies on a donorís interest in helping a charity ó both in supporting the cause and the overall mission.

"While there are financial benefits to donating, this element is always secondary," Chaney said. "Thatís because the financial benefit you will receive is only a portion of the dollars given.

"The most satisfying gifts are those given to causes that you deeply value, since a charitable donation is ultimately an investment in your values."

For example, donors who love animals could choose to contribute to an animal shelter.

The next step is to determine how much to give.

"We believe that the amount should reflect the level of your commitment," Chaney said. "If that commitment is significant, make sure that the amount of your gift does not jeopardize your financial goals. Sizable donations should be discussed with both your tax and financial adviser(s), who can ensure that the gift will not upend financial obligations or objectives."

Although cash is welcome, donors may wish to consider giving a highly appreciated asset, such as shares of publicly traded companies. This approach offers three potential benefits: avoiding capital gains tax, receiving a tax deduction, and reducing company-specific risk in a portfolio.

Fragasso said that if a donor gives an appreciated security, that person can save the tax that was due on the gain as well as maintain the full ordinary income deduction of the gift.

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"Suppose I give $100 a week to my church. That would be $5,200 a year," Fragasso said. "If I write a check each week, I can potentially deduct $5,200 against my ordinary income.

"But suppose, by contrast, I have an appreciated security that has a cost basis of half that amount. When I sell it, now or later, I have to pay a 20 percent capital gain tax on that gain.

"By gifting $5,200 of the appreciated security, I relieve myself of the responsibility of paying that tax," he said. "The charity will sell it after it is received and pay no tax as it is a tax-free entity. And on top of saving the 20 percent capital gain tax, I still get the same $5,200 tax deduction for making the charitable gift."