Charity Donation: How to Give It Away Without Losing It All

Nov. 2, 2010— -- The holidays are right around the corner and charitable giving has always been an important part of the season.

Americans donated more than $303 billion to charity last year, with a quarter of that coming between Thanksgiving and New Year's.

However, with so many people facing financial hardships, it is getting more difficult for many Americans to give.

Mellody Hobson, "Good Morning America" financial contributor and president of Ariel Investments, has five tips to make the most of your donations this year.

1. Make a Budget

A survey by the Giving USA Foundation found that charitable giving was down 3.6 percent in 2009.

The good news for charities this year is that Consumer Reports found in their annual shopping poll that most adults expect to spend more on charitable donations and gifts to others and less on themselves.

The most important thing you can do when determining your charitable donation is to determine what causes you would like to support and make a budget.

Hobson said the bottom line is that you should never give more than you can afford.

Also remember if you are giving to a charitable organization, you do not have to give it all at once, especially if you cannot afford it.

For example, if you want to give $500 to the American Red Cross for the year, then make 12 equal monthly payments.

Finally, do not go into debt giving charitable donations, or you may find yourself needing help yourself.

With more than 2 million charities to choose from, it can be difficult to determine the best charities for you to send your money.

There are horror stories about charities spending more on paying their CEOs than actually giving money to the causes that they say they help.

According to the AARP, most charities spend less than 35 percent of their donations on fundraising and administrative costs.

Fortunately, there are websites that rate the efficiency of charities.

Charitynavigator.org and Guidestar.org provide stats on thousands of charities to help you determine which ones are the best.

Hobson recommends the website: donorschoose.org.

Public school teachers post requests on the website ranging from pencils to music instruments.

You can browse the requests and donate as much as you want towards the goal.

The American Institute of Philanthropy also publishes a charity rating guide on more than 500 charities.

It costs $3 and ordering information can be found at Charitywatch.org.

If you are donating to a local charity you may also want to visit the organization's headquarters.

Hobson said don't be shy asking the charity potential questions.

3. Look for Alternative Ways to Give

During the holiday season we usually think of giving gifts to our friends or relatives.

Instead of receiving gifts from your friends or relatives tell them to give to your selected charity in your name.

There are gift cards that you can give to individuals which they can then direct to charities.

For example, the Good Card from www.networkforgood.com allows the card's recipient to give to more than 1.2 million charities.

You buy the card from the website for $5 and you can put between $10 and $250 on the card.

The one downside is that these cards expire after six months.

Credit card companies are also making it easier to donate to worthy causes, without hurting your budget.

For example, American Express through its "Members Give" program allows you make donations to more than a million charities.

You can either donate money through your card, or you can use points to donate money directly to charities.

You can also give "Members Give Charity Certificates" through Amex.

Before using your credit card company to make charitable donations make sure you visit their website to understand any fees that may be associated with your gift.

4. Verify with Better Business Bureau

Charitable giving is not immune to scams. A recent report found that nearly 4,000 scam websites in existence after Hurricane Katrina in 2005.

The best way to check if a charity is legitimate is to verify it with the Better Business Bureau.

For national charities you can go to the Better Business Bureau's wise giving alliance at www.bbb.org/charity.

They have information on more than 500 national charities.

For local charities, you can check for complaints on your state attorney general's website or through your local Better Business Bureau chapter.

The one thing to note is that many fraudulent charities use very similar names to real charities, possibly even changing one letter.

So it is important that you carefully look at the name when doing your research.

5. Make Sure Charity Is Tax Deductible

You can only deduct a charitable donation if you itemize your deductions.

You must keep receipts for all of donations you give.

For example, text giving during the Haiti earthquake was very popular.

Your phone bill is a valid IRS record as long it contains the name of the organization, how much you have given, and the date of the gift.

If you take a standardized deduction then you are not eligible.

Also, not all organizations are considered eligible for tax donations by the IRS.

They must be what is called a 501(c)3 organization.

Most charities will identify themselves as these types of organizations on their request letters.

If you want to make sure your charity is a 501(c)3 organization, you can search for them on the IRS's publication 78, which is online at www.irs.gov.

Web Extra Tips From Mellody Hobson

If you cannot donate money to a certain charitable organization, then think about donating your time. Charities are always looking for people to volunteer. If you have a certain background like accounting, you could be even more valuable by donating your services.

If a charity contacts you by phone always ask them to send printed materials before you give any personal information. Then verify the printed materials on-line through organizations like the Better Business Bureau. Also never give credit card information over the phone unless you have initiated the call and you trust the organization.

Many employers will match your contributions to certain charities or schools. Check with your human resources department to see what your company's matching policy is -- it could mean extra dollars for your charity at no cost to you.