Michael Dixon
Are You Efficiently Charitable?

Not planning how to give can prevent you from maintaining and growing your wealth.

February 18, 2010
by Michael Dixon, CPA, PFS

It is wise to plan your philanthropic budget for the year because this gives you a guide for how much to spend in any given month.

Consciously choose the causes to which you will contribute. For example, you may want to give money to health-related issues but not to the arts. If you don’t plan, you wind up giving away money to organizations you don’t really want to support.

Factor in “mad money.” There’s something to be said for spontaneity, so give yourself some room for things that may come up outside your charitable giving budget (auction items, raffle tickets).

Giving Smartly

Not planning how to give, whether its $10,000 or $1 million can prevent you from maintaining and growing your wealth so that you can make an even greater difference. The real question is, if you are charitable, are you efficiently charitable?

Many individuals may be writing ten to twenty checks at the end of the year to all their favorite charities. However, these same individuals may have other assets that they could use in a more tax advantageous manner. For example, they may own appreciated securities and real estate that could be donated. If you are working with a sophisticated nonprofit organization, you may be able to consider gifts of limited partnership interests, shares of a closely held (private) company, personal property (such as art or other collectibles) or intellectual property (like royalties or movie rights).

Planning Tips

Take inventory of your assets. To make the smartest choice about what asset to use to fund your charitable activity, you need to know what you have. Only when you (and your advisors) know the range and choices available within your estate can you give smartly.

Work with your accountant (or seek a second opinion). This is tricky. You may have an accountant who is technically very capable, but not very creative. That’s when you might choose to work with a financial advisor or tax attorney who specializes in the nonprofit sector. Sophisticated nonprofit organizations, the development or advancement departments of colleges and universities or community foundations in your area usually have a list of these individuals for your consideration.

Make sure your gift is appropriate for the nonprofit’s needs. Many nonprofit organizations are comfortable receiving assets other than cash, however, some are not. Have a full discussion with the executive director or development director of your charity to make sure they have the willingness — and wherewithal — to explore and execute different and creative gifts.

Take advantage of matching company contributions to charitable organizations. One way to save on taxes is by making charitable donations. You can maximize your gift giving by checking with your human resources department to see if your company offers matching contributions. Many companies will match what you give dollar for dollar up to a certain amount. It’s a win-win for everyone. Your charity receives a larger donation and you and your employer have a tax write-off.

Starting a Nonprofit Venture Without Doing Your Homework

Successful individuals who are entrepreneurs or business leaders often want to tackle social problems with the same energy and “go it alone” attitude that has helped them throughout their career. Unfortunately, tackling community problems takes the same time and attention as starting a new business or running a division of a company -- sometimes even more. Often, individuals who are passionate about a particular issue, but not necessarily experienced in the nonprofit sector, will quickly incorporate an organization, begin raising money and apply the funds to new programs. What frequently follows is an unfortunate cycle of not having enough time to do the nonprofit venture well, while keeping on top of the moneymaking business (your day job).

Planning Tips

  • Get smart on the issue. When you follow your passion on an issue, don’t only read the current best seller on the subject or listen solely to the recognized guru. Think of it as if you were starting a business. If you were going into a market, the first question you would ask is, “Who is my customer?” In order to get smart on any particular issue, you may wish to call your local Community Foundation, United Way or volunteer center. Remember to take your time and be patient. It sometimes takes a little while to find the right organization or person to talk to.
  • Find an organization and lend your expertise. Ideally, you would find one or two organizations that appeal to you. Visit them, ask for a tour and check out their Web sites. You can even see their tax returns (look on www.guidestar.org). When you find an organization, lend some of your time utilizing your natural gifts. I would recommend you gain experience on both the programmatic side (client service, tutoring, mentoring, etc.) and the governance side (becoming a board member) in order to get a well-balanced view of nonprofit operations.
  • Be an investor, not a donor. When you begin this journey toward a deeper relationship with a nonprofit organization, you will be aware of and care more about the importance of your monetary contribution. With the scandals in the nonprofit sector over the past several years, there is an increased demand for public disclosure and transparency. You should know how every penny of your contribution is being used and help the organization know the importance of this disclosure.

Creating a Foundation

Over the years the private foundation has become somewhat of a status symbol.

What many people don’t know is that this vehicle is a new entity or a new corporation, with its own unique and somewhat complex set of legal and accounting guidelines. And, because some people have abused the privilege of establishing a private foundation, Congress, the Internal Revenue Service (IRS) and the Attorneys General of most states have increased their scrutiny of these foundations. If you want to establish a charitable legacy, there are many options to explore. You just need to know the right places to go and people to ask. When our clients approach us with the idea of creating a foundation, we provide them with a detailed white paper on this issue.

Planning Tips

There are specialists who responsibly create these types of entities. The most common advisor to go to would be an attorney with a specialty in tax-exempt organizations. They should be able to ask all the appropriate questions and create the most appropriate vehicle to facilitate your philanthropic wishes.

  • Ask about options. A good advisor should give you a range of options and not focus only on the creation of a private foundation. These would include donor-advised funds which are usually offered by nonprofit community foundations or for-profit mutual fund companies and other financial institutions.
  • Be mindful of ongoing operations and succession. Much like a business, issues of regulations, operations and succession should be considered when creating a private foundation. Beware if an advisor establishes a foundation for you without addressing these issues.
  • Know you have resources. There are national and local trade associations for foundations. One national organization is the Council on Foundations. It provides counsel and support to foundations in all phases of development and operation.

Additional Resources: The AICPA PFP Section provides information, tools, advocacy and guidance to CPAs who specialize in providing tax, retirement, estate, risk management and investment advice to individuals and their closely held entities. All members of the AICPA are eligible to join the PFP section. For CPAs who want to demonstrate their expertise in this subject matter apply to become a PFS Credential holder.

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Michael J. Dixon, CPA, PFS, is Director of Planning and Wealth Management of Carl Domino, Inc. He is a trusted advisor to affluent individuals, providing financial and wealth planning advice. He is a graduate of the Wharton School at the University of Pennsylvania and is a licensed CPA, PFS (registered Personal Financial Specialist).