MONEY Taxes

Congress Delivers a Few Last-Minute Tax Breaks

A last-minute bill restores a break for charitable giving, the sales tax and tuition write-offs, and more.

The U.S. Congress, in its wisdom, waited until the waning weeks of the year to approve some tax breaks that will only be good for 2014.

That means that in some cases, you lost out: it is too late to take advantage of them and you are going to lose them at the end of the year.

But there are a handful of provisions that may benefit some taxpayers who have special situations and can act quickly to lock in their breaks, once President Barack Obama signs the tax extenders bill as he is expected to do soon.

In addition to the usual year-end moves—make your charitable contributions, feed your individual retirement account, take your investment losses—consider this short list of limited-time strategies:

Give away part of your IRA. There is a special situation for people who face mandatory minimum distributions from their retirement accounts, but do not itemize their tax deductions, and as a result, can’t write off charitable contributions. They can avoid taxes on their IRA distribution by transferring it directly to a charity, suggests Greg Rosica, a partner with Ernst & Young.

This provision expires on Dec. 31, however, and it is unclear whether it will be renewed next year. Taxpayers in high tax brackets who do not itemize may want to transfer more than the minimum to get money out of their IRA and cover gifts they would otherwise make in subsequent years: under this rule, you can transfer as much as $100,000. So contact your favorite charity and make sure they can effect the rollover before year-end.

Buy your boat. Congress also extended, just through the end of 2014, the provision that allows taxpayers to deduct their state sales taxes from their taxable income instead of deducting their state income taxes. In places like Florida where there is no state income tax, that is a benefit that can be worth a lot. If you’ve had your finger on the “buy” button for a new boat, car, or other expensive item, you might save significantly by buying it this year, says Rosica, one of the authors of the voluminous EY Tax Guide 2015.

Make a tuition payment. Even people who do not itemize deductions are allowed to write off up to $4,000 in tuition and education expenses if their income falls under certain levels. You may have already spent that much on qualified education costs this year. But if you have not—and you expect to be ponying up for spring semester—make that payment before 2014 ends.

Talk to your human resources department about that commuting benefit. For almost all of 2014, employers operated under the clearly inequitable (and environmentally unfriendly) rule that people who used mass transit could set aside pre-tax income of up to $130 a month for commuting costs, but those who drove to work could set aside $250 a month for parking. Now Congress has equalized those two benefits at $250 per month for all of 2014—but this year alone.

For many workers at large companies, it is too late to get an additional $1,440 taken out of their pay for commuting costs this year. That’s too bad, because it could save some people more than $600 in state, federal and Social Security taxes. If you have a more flexible HR department, go ask for a make-up withdrawal. You could always load your farecard for next year when Congress may go through this exercise again.

MONEY Taxes

10 Last-Minute Ways to Save on Your Taxes This Year

woman donating clothes
Clean out your closet by Dec. 31 and cut your tax bill. JGI/Jamie Grill—Getty Images

In between your holiday shopping and New Year's plans, make time for these time-sensitive tax moves.

You know that the window to finish your holiday shopping is closing fast. Well, so is the time you have to cut your 2014 tax bill. Before you pop open the champagne on New Year’s Eve, make sure you’ve ticked off these valuable tax tasks.

1. Be Charitable Now

Individual Americans donate some $250 billion dollars to charity every year, according to the annual Giving USA report, and December is high season for giving.

By donating to charity, you can trim next your tax bill next April. You must itemize to get a write-off, and the organization must be a qualified charity. Check at IRS.gov.

Then you simply need to get a check in the mail by Dec. 31. Or put the gift on a credit card before year-end and pay the bill in January. Make sure you have a receipt, be it a cancelled check or your credit-card statement. But if you donate $250 or more, you must get a written record from the charity.

If you give away clothes or stuff from around the house, you’ll be able to deduct the fair market value, as long as the goods are in good condition or better.

“The end of the year is a great time to donate some items to charity,” says financial planner Trent Porter. “Your good deed will be rewarded with a bigger tax refund and a clean closet”

2. Be Charitable Later

If you’re in search of a big deduction in 2014, but you’re not ready to support a single charity now, here’s a good option. With as little as $5,000, you can set up a donor advised fund with a brokerage of fund company such as Fidelity or Schwab. You get the upfront tax savings, the money is invested, and you can then donate a portion of the fund to the charities of your choice for years to come.

“These accounts make it easy to use appreciated securities and other assets to fund your philanthropy, thus avoiding paying capital gains tax on the appreciation,” says financial planner Eric Lewis.

3. Invest in Education

A year of tuition and fees at even a public college will cost you more than $23,000 today. You need all the tax breaks you can get.

If you’re saving for school in a 529 college savings plan, that money grows tax-free, and withdrawals are tax-free as long as the money goes toward higher ed.

You can’t deduct those contributions on your federal return. But in 34 states and the District of Columbia, you can qualify for at least a partial deduction or a credit on your state tax return, as long as you fund the account by Dec. 31. Look up your state’s rules at savingforcollege.com.

4. Speed Up Deductions

A popular strategy for cutting your tax bill is to move up as many deductible expenses as you can. This is especially smart if your income will be high this year—say you cashed out winning investments or sold property.

One simple way is to donate more to charity. You can also make your January mortgage payment in December, which will give you extra interest to deduct. You could also prepay your property taxes, or send in estimated state and local taxes that you would otherwise pay in January. Or pay next year’s professional dues and subscriptions to trade publications.

Don’t employ this strategy, however, if you expect to be in a higher tax bracket in 2015. In that case, the deductions will be more valuable to you next year.

5. Top Off Retirement Plans

In 2014, you can save $17,500 in a 401(k) plan, or $23,000 if you’re 50 or older. If you haven’t saved that much, see if your employer will let you make an extra lump-sum contribution before Dec. 31. If you can’t, make sure you hit the max next year by raising your contribution rate now. The limit will rise to $18,000 in 2015, or $24,000 if you’re 50 or older.

You have until next April 15 to fund a traditional or Roth IRA for 2014, but the sooner you save the more time you’ll have to get the benefit of tax-deferred growth. What’s more, planning ahead might make for better investment choices. A recent Vanguard study found that last-minute IRA investors are more likely to simply park the money in cash and leave it there.

You can contribute $5,500 dollars to an IRA in 2014, or $6,500 if you’re 50 or older.

If you run your own business and want to save in a solo 401(k), you must open that plan by Dec. 31, though you can still fund it through next April 15.

6. Look for Losers

Nearly six years into this bull market, long-term stock investors are sitting on big gains. Maybe you cashed in a profitable stock or mutual fund this year. Or you trimmed back your winners when you rebalanced your portfolio. Unless you sold within a retirement account, you’ll face a tax bill come April. And the best way to cut that is to offset your investment gains with investment losses.

By pairing gains with losses, you can avoid paying capital gains taxes. If you have more losses than gains, you can use up to $3,000 worth to offset your ordinary income, and then save the rest of the losses for future years.

However, don’t let tax avoidance get in the way of sound investing. You should sell a stock or fund before year-end because it doesn’t fit with your investing strategy, not just because you have a loss.

If you want to buy the investment back, you must wait 31 days. Do so sooner, and the IRS will disallow the write-off (what’s called the “wash sale” rule).

7. Part With Big Winners

If you donate winning stocks, bonds, or mutual funds directly to a charity, you can enjoy two tax breaks. You won’t owe any taxes on your capital gains. And you can deduct the full market value of the investment on your 2014 return.

8. Tap Your IRA

With a tax-deferred plan like an IRA, once you hit age 70 1/2 you must take out some money every year. You have to take your first distribution by April 1 the year after you turn 70 1/2. Then the annual deadline for your required minimum distribution, or RMD, is Dec. 31.

This rule doesn’t apply to Roth IRAs, and if you have a 401(k) plan and you’re still working, you can usually wait until you do retire to start withdrawing money.

The IRS minimum is based on your account balance at the end of last year and your current life expectancy. Your broker or adviser can help you with the calculation, but you’re responsible for making the withdrawal. If you fail to do so, you’ll owe a 50% penalty on the amount you should have withdrawn.

You can also donate your RMD directly to charity and avoid paying income taxes on the withdrawal. In mid-December, Congress extended that rule, which had expired, for at least one more year.

9. Spread the Wealth

Making outright gifts is a smart move tax-wise, says Ann Arbor financial planner Mo Vidwans. Your heirs are less likely to face estate taxes down the road—and you can help out your kids or grandchildren when they need it the most. In 2014, you can give as many people as you want up to $14,000 tax-free. If both you and your spouse both make gifts, that’s $28,000.

If you’re funding 529 plan, you can frontload five years worth of gifts and put $70,000 into a child’s account now.

10. Pay Taxes Now and Never Again

With a traditional individual retirement account, your contributions are tax deductible, but you’ll owe income taxes on your withdrawals. A Roth IRA is the opposite: You invest after-tax money, but your withdrawals are 100% tax free.

Before year-end, you can convert a traditional IRA to a Roth. You’ll have to pay taxes on the conversion in 2014. But then you’ll never owe taxes on that money again.

Converting to a Roth is an especially smart move if your income was down this year and you’re in a low tax bracket. “If you have a low-income year, do a Roth conversion,” says New York City financial planner Annette Clearwaters. “Whenever I see a tax return with negative taxable income I cringe, because it’s such a wasted opportunity.”

And if you later change your mind, you have until the extended tax-filing deadline next October to switch back to a traditional IRA. Clearwaters recommends undoing any conversion that puts you above the 15% federal tax bracket.

Update: This post was updated to reflect Congress’s extension of the rule allowing for direct charitable donations of RMDs.

MONEY charitable giving

How to Get the Most Bang for Your Charitable Giving Buck

Katherina Rosqueta
Joe Pugliese

Katherina Rosqueta, executive director of the Center for High Impact Philanthropy, explains how you can make a meaningful difference with your charitable dollars, even if you don't have Bill Gates' money.

Katherina Rosqueta, 47, is executive director of the Center for High Impact Philanthropy at the University of Pennsylvania. She has led the center, which provides analysis and educates individuals on how to maximize the social impact of their charitable donations, since its founding in 2006. MONEY senior writer Donna Rosato interviewed Rosqueta for the December 2014 issue, from which this Q&A is adapted.

Should I change how I give to charity?
Maybe. It depends on your motives. If you want to make a big impact, it’s not about the money you give. It’s about how well you give that money. The biggest misconception people have is that good intentions and a lot of money mean a lot of impact.

You need to move away from the focus on financial inputs, like how much money a charity has and what its overhead costs are. Instead, focus on the change you want to create, the actual impact. Is it helping people who have lost everything in a major disaster? Getting a child to read at grade level? Ask yourself where you can get the most bang for your buck. Be clear on the results you’re trying to achieve. Then sup­port organizations that are doing that.

Still, I don’t have Bill Gates’ money. Can I really make an impact?
Funders with more resources than you are often addressing bigger, more capital-intensive problems, like developing a new vaccine. But you can make a meaningful difference with a lot less money. It costs $150 to provide home-based health care to poor families in rural India. To help just one newborn, it’s $7. You could be saving a child’s life. The key is finding organizations that are using your money to the maximum effect.

How can I find a charity that is getting results?
There’s no one-stop shop. Sites such as charitynavigator.org, give.org, and guidestar.org let you know whether charities are legit and how much they spend on operations. Other sites, such as myphilanthropedia.org, focus on particular issues and help you judge which organizations have the most impact and cost-effectiveness.

At our center, one thing we do is research which practices lead to the most change. We then identify organizations that use those practices in specific areas such as hunger and urban revitalization. For example, we found that community groups can make a difference with simple landscaping and maintenance of vacant lots. In a program in Philadelphia, gun-related crimes fell 7% and property values rose 17% in neighborhoods where lots were cleaned, greened, and maintained—all for about $1,100 a year per lot.

So have these sites solved the problem of judging effectiveness?
No. There are more than 1 million nonprofits registered in the U.S.  What we do is very labor-intensive. No one has the capacity to evaluate the ongoing results of every nonprofit.

In that case, how should I evaluate a small local charity like a theater group or an animal shelter?
First, do a search on charity-screening sites and Google to check that it’s a registered nonprofit and to see whether there are concerns about fraud or misuse of funds. As for results, ask why this organization exists. Is the group’s goal to enhance the quality of arts and culture in your town? Go to a show and see how many people attend. If you count 10 people, that’s not much of an impact. Or get involved directly. Volunteer to walk dogs at the local shelter. Spend time within a nonprofit to observe its work and see how well it’s run.

Many people spread their giving around. Is it more effective to focus on one charity?
There are always tradeoffs, but spreading out your donations can be quite helpful. If you’re new to an issue, donating to several charities involved in that cause is a smart way to learn how different organizations work. You can decide later if you want to concentrate your giving on one.

What about giving to my college? Why should I if a super-wealthy class­mate is writing huge checks?
Often people give to their college because they feel gratitude for what they got from the school, not because of the impact their donation will have. Giving to your alma mater just serves another purpose.

Let’s talk about a crisis in the news: the Ebola epidemic. How can I help?
There are two types of organizations to consider for a crisis of this scale. The first are large international aid organizations that bring really specialized skills, like Doctors Without Borders. They are first responders who have the networks and experience to work in really tough settings. But they alone can’t solve it. You need organizations working in the region that know the local culture, geography, and language. You need both a top-down and bottom-up approach.

How do I find these bottom-up organizations?
Most of the time you can’t do it yourself. You have to rely on folks like those in our center and others with local connections. But if you yourself know people who work in an affected region or have personal ties to it, they can be a good source of information on what is working.

How should I respond to the next major natural disaster?
Often the best thing to do is send money. When there is a natural disaster, one impulse is to send donated items—food, blankets, or clothes. But needs change quickly. By the time these things arrive, there may be more urgent concerns.

If you know there’s a need in your local community for a specific item and you have an efficient way to get the goods there, you should do it. If you don’t have direct knowledge, what you donate may take up precious space, create transportation costs, and use up volunteer time moving and storing items that aren’t needed.

Many people give to the Red Cross after a natural disaster. A recent report, however, alleged serious problems with the group’s response to Hurricanes Isaac and Sandy in 2012. So what should people do now?
I don’t know enough to say whether you should stop donating to the Red Cross. But you shouldn’t give to an organization you don’t trust. If the only information you have about an organization is that it isn’t using money well, then don’t give.

Disaster relief can be an especially difficult area for giving. Some of that is due to the inherent chaos in the immediate aftermath of any disaster. Organizations that are seen as a “go-to” in times of disaster have increased responsibility to earn donors’ trust by providing a high level of transparency and accountability.

At this time of year, people think a lot about charitable donations. What advice do you have for getting the most out of seasonal giving?
Plan your giving before the busyness of the season takes over. Treat it like an investment decision rather than an impulse buy.

We just published our annual year-end giving guide, which identifies six high impact giving opportunities and provides advice on how to make your giving have a bigger impact throughout the year.

Is there an amount that makes us feel good about giving?
There’s not a particular number. But a lot of research finds that people who give and volunteer are happier and more successful.

Listen to more of Rosqueta’s advice about effective giving:

MONEY Taxes

9 Rules for Tax-Smart Charitable Giving

donating money to box
Jeffrey Coolidge—Getty Images

When you support a good cause, make sure you also get the tax benefits you deserve.

Year-end is peak charitable giving season. To make sure your generosity pays off on next April’s tax return, know the rules for writing off your donations.

You have to itemize deductions. Sorry, but if you take the standard deduction, you can’t write off your gifts to charity on top of that.

You need to give to a legit charity. To check if a nonprofit is a qualified charity in the eyes of the Internal Revenue Service, use the IRS’s Select Check tool. You can also deduct donations to your church, synagogue, mosque, or temple.

You can donate right down to the wire. For a gift to qualify for a deduction, you simply need to get your check in the mail by December 31. Need more time? You can put your gift on a credit card before year-end and then pay the bill in January. (Keep in mind, though, that when you pay by credit card, processing fees may reduce the value of your gift.)

You should save your backup. Make sure you have a receipt for your gift. A cancelled check or credit card statement may be enough. But if you make a donation worth $250 or more, you must get a written acknowledgment from the charity.

Your time can be worth money. As a volunteer, you can’t deduct the value of your time. But you can deduct 14¢ for every mile you drive as part of your volunteer work, so keep track.

You shouldn’t take credit for giving away actual junk. If you donate clothes or household items, you’ll be able to deduct the fair market value—as long as the items are in good condition or better. Keep any paperwork you have for valuable items, and take photos of your donations for your records. It’s up to you, not the charity, to assign a value to your stuff. To do that, you can use thrift store guides published by the Salvation Army, Goodwill, and others, or the ItsDeductible app.

You can’t inflate the value of your old car. When you donate your old wheels to charity, your deduction is generally limited to what the nonprofit brings in by selling your car, not the Kelley Blue Book value. Plus, when you donate a car or other property worth more than $500, you’ll need to file IRS Form 8283.

You can get two tax breaks if you donate winning investments. Another way to save on taxes is to give highly appreciated stocks, bonds, or mutual funds directly to a charity. You won’t owe any taxes on your capital gains. And you can deduct the full market value of the investment as a charitable gift.

You can contribute a big sum now and give it away later. If you open what’s called a donor-advised fund, you can deduct the entire gift on your 2014 tax return and parcel out the money to good causes later. With as little as $5,000, you can open a donor-advised fund at firms such as Fidelity or Schwab.

More tax tips from MONEY 101:
When does it makes sense to itemize?
What kind of expenses can I write off if I’m self-employed?
How can I reduce my tax bill?

TIME Parenting

What Bill Gates’ Kids Do with their Allowance

How do you teach insanely wealthy kids how to manage money?

The rich are different from you and I, but they still want to give their kids an allowance. So what do the world’s richest man’s kids do with their money? Melinda Gates came to TIME’s offices to talk about her new focus on women and children and especially on contraceptives, but she spilled some secrets about how she tries to get her kids to be purposeful with their money.

First of all, she tries to be true to her values, to articulate them and live them out. Then, they do a lot of volunteering together, at “whatever tugs at their heartstrings” says Gates. And of course, they’ve traveled with her. “They have that connection I think to the developing world,” she says. “They see the difference a flock of chicks makes in a family’s life. It’s huge.”

Read the 10 Questions with Melinda Gates here

Gates has always made a point of getting into the streets and poorer neighborhoods when she travels for meetings and conferences. And sometimes she takes her kids. It’s there, she says, that she meets mothers who tell her that their biggest struggle is having so many children. Although Gates was raised Catholic, she is heading up an initiative to get family planning information, contraceptives and services to 120 million more women by the year 2020. That includes new technology, better delivery system and a lot of education, including for men.

She’s similarly rigorous about her home life. Her kids save a third of their allowance and designate a charity they’d like to give it to. (They can also list donations to charities on their Christmas wish list.) As further incentive, their parents double whatever money they’ve saved. Which means they may be the only children in the world to get a matching grant from the Gates Foundation.

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TIME
MONEY Financial Planning

How Families Can Talk About Money Over Thanksgiving

Family Thanksgiving dinner
Lisa Peardon—Getty Images

Holiday get-togethers are a great time for extended family members to discuss topics like estate planning and eldercare. Here's how to get started.

While most Americans are focused on turkey dinners and Black Friday sales, some financial advisers look to Thanksgiving as a good time for families to bond in an unlikely way: by talking about money.

The holiday spirit and together-time can make it easier for families to discuss important financial matters such as parents’ wills, how family money is managed, retirement plans, charity and eldercare issues, advisers say.

While most parents and adult children believe these discussions are important, few actually have them, according to a study conducted last spring by Fidelity Investments. Family members may avoid broaching these sensitive subjects for fear of offending each other.

That is where advisers can shine.

“When you help different generations communicate and cooperate on topics that may keep them up at night, it bonds them as a family,” says Doug Liptak, an Atlanta-based adviser who facilitates family meetings for his clients. It can also help the adviser gain the next generation’s trust.

Advisers can encourage their clients to call family meetings. They can also offer to facilitate those meetings or suggest useful tips to families that would rather meet privately.

Talking Turkey

Family meetings should not be held over the holiday table after everyone has had a few drinks, but at another convenient time.

“That may mean in the living room the next afternoon, over dinner at a fun restaurant, or at a ski lodge,” says Morristown, N.J.-based adviser Stewart Massey, who has vacationed with clients’ families to help them hold such mini-summits.

It is critical to have an agenda “and be as transparent as possible,” he says. Discussion points should be written out and distributed to family members a few weeks ahead to avoid surprises. Massey also suggests asking clients which topics are taboo.

Liptak likes to meet one-on-one with family members before the meeting. If you can get to know the personalities and viewpoints of each family member and make everyone feel included and understood, you will be more effective, he says.

“You might have two siblings who are terrible with or ambivalent about money, while the youngest is financially savvy, but you can’t give one person more say,” says Liptak.

It also helps to get everyone motivated if the adviser brings in the client’s children or other family members ahead of time to teach them about money management topics, like how to invest, says Karen Ramsey, founder of RamseyInvesting.com, a Web-based advisory service.

Sometimes the clients are the adult children who are afraid to ask how the parents are set up financially or where documents are, she says.

Ramsey says advisers can help by letting clients and their families know that a little discomfort may come with the territory. She will say, and encourages her clients to say: “There’s something we need to talk about and we’ll all be a little uncomfortable, but it’s okay.”

The adviser can kick off a family meeting by asking leading questions, such as “What one thing would you like to accomplish as a family in 2015?” says Liptak. Then the adviser can take notes and continue to facilitate the discussion by making sure everyone gets heard and pulling out prepared charts and data when necessary.

Massey suggests families build some fun around the meetings. His clients often schedule them around the holidays and in the summer, often tucked into a vacation or weekend retreat. It is a good practice to have them regularly, like board meetings, he says.

And if the family has never had a meeting before?

“Don’t start with the heavy stuff,” says Liptak. “It’s a good time to focus on giving and generosity, like charities the family can contribute to.

“You can collaborate on an agenda for later for the bigger issues.”

MONEY charitable giving

The Best Ways to Donate to Help Fight Ebola

How to find a charity that will spend your money well—and how to avoid the scams that always spring up after disasters.

Many charities are immersed in the fight to control the Ebola epidemic, but so far the donors have not come forward en masse—although scams already are emerging.

For those ready to dig into their pockets, here are four tips to make an impact with your gift.

Sort the Lists

You can find comprehensive lists of charities fighting Ebola from organizations that vet nonprofits like Guidestar, Charity Navigator, and the Better Business Bureau Wise Giving Alliance.

These lists can be overwhelming. Charity Navigator, for instance, identifies 45 charities with top accountability ratings aiding in the fight against Ebola and also helping victims.

Doctors Without Borders, which has been extremely visible throughout the outbreak that has claimed nearly 5,000 lives, tops most lists.

The organization, also known as Medecins Sans Frontieres, announced it is budgeting $64 million for its work fighting Ebola. It has raised at least $35 million in private donations and secured $25 million in institutional funding. The group operates six Ebola case management centers, with about 600 beds that are in isolation. It has treated 3,200 confirmed Ebola cases.

Also among those recommended by Charity Navigator are Pennsylvania-based Brother’s Brother Foundation (which distributes medical supplies), the Missouri-based humanitarian organization Convoy of Hope, and some better-known charities including the United States Fund for UNICEF, Oxfam America, and Save the Children.

Give Broadly

While donors want to know their donation is going for a specific purpose, such as helping victims in a specific country, Ken Berger, chief executive officer of Charity Navigator, says that’s not always the ideal way to go.

It’s best to give to an organization whose overall mission you trust and allow the group to decide where the money can be used, Berger says. Saying you only want the cash to go for a certain medication, for instance, could hamstring an organization that already has an abundant supply of the drug but needs cash for other purposes.

Some noteworthy organizations include the Bill and Melinda Gates Foundation, which has pledged $50 million, committing the first $12 million to the World Health Organization, the U.S. Fund for UNICEF, and the U.S. Centers for Disease Control and Prevention.

Another option is the CDC Foundation, which was created by Congress as a non-profit that raises money in support of the CDC. Facebook CEO Mark Zuckerberg and his wife donated $25 million to the foundation.

Donate Your Vacation Time

If you don’t have cash to spare, you can now give away your unused vacation time. The Internal Revenue Service this week added to the mix of donation options specifically related to the Ebola outbreak by allowing American workers to donate vacation, sick time, or personal leave.

Under the IRS guidelines, employees give vacation hours back to their employer who converts those hours into cash. Donating the funds to tax-exempt organizations working to help Ebola victims in Guinea, Liberia, or Sierra Leone qualifies for a tax break. And the employees don’t have the money counted as income, under this arrangement, which has been used for previous natural disasters.

Beware of Scammers

The biggest trouble spots for potential donors are crowdfunding sites along with social media because they can appear legitimate but lack verification.

“Anybody can put up a crowdfunding site and promise to do something,” Wise Giving Alliance chief operating officer Bennett Weiner says.

Hundreds of such sites already exist, such as one that purported to benefit a Dallas nurse who had been infected. It was removed after her family members objected.

Tips from the Federal Trade Commission to avoid Ebola-related fund-raising scams include:

  • Avoid charities that appear to have “sprung up overnight in connection with current events.”
  • Be wary of charities whose websites or names are similar to those of established charities.
  • If you receive a call from a solicitor, and you’re interested, ask who they work for and the percentage of the donation that goes to both the fund-raising firm and the charity. Lack of a clear, direct answer is a red flag.
  • Do not send cash. You won’t know the money went where it was supposed to and you won’t have a record.

 

MONEY charitable giving

Give to Charity Like Bill Gates…Without Being Bill Gates

Bill Gates, co-founder of Microsoft, co-founder of Bill and Melinda Gates Foundation.
Chesnot—Getty Images

You don't have to be rich to set up the equivalent of a charitable foundation — one that can continue making donations even after your death.

One of my clients — I’ll call him Jonathan — came to me recently with concerns about his estate planning. Jonathan was a successful corporate manager who received a big payday when a major firm acquired the company he worked for. With no children of his own, he’d arranged for most of his wealth to be divided between two favorite charities: a local boys club and an organization that helped homeless people train for work and find jobs. Life had been good to Jonathan, and he wanted to give back.

But recently, there had been some management changes at the homeless support agency, and Jonathan was no longer confident that his gift would be well used. He was thinking about removing them from his trust.

We suggested something that sounded to him like a bold plan, but was really quite simple. Amend your trust, we told him, so that upon your death your funds go to a donor-advised fund — a type of investment that manages contributions made by individual donors.

Jonathan knew what a DAF was. He was already using one for his annual charitable giving because it let him donate appreciated securities, thus maximizing his annual tax deduction. Like many people, however, he’d never thought about donating all his wealth to a DAF after his death. He was under the impression that a donor needed to be alive to advise the fund.

Not so. Jonathan just needed to establish clear rules on who the future adviser or advisory team would be and how he would want them to honor his philanthropic wishes. With a DAF, he could arrange for a lasting legacy of continued giving beyond his own life. Another plus: Because no organization’s name is written into trust documents, changing your mind about what charities to give to is quick and simple. With a trust, changing a charitable beneficiary often requires a trip to your lawyer.

People tend to think that leaving an ongoing charitable legacy is exclusively for uber-wealthy people such as Bill and Melinda Gates, whose foundation gave away $3.6 billion in 2013. While there is no defined level under which a foundation is “too small,” Foundation Source, the largest provider of foundation services in the US, serves only foundations with assets of $250,000 and up. While foundations offer trustees greater control over investing and distribution of gifts, they are costly to set up and run, and have strict compliance rules.

DAFs offer an alternative. Their simplicity, relatively low cost, and built-in advisory board make them an ideal instrument for securing a financial legacy. Unlike foundations, there is no cost to set them up. And the tax advantages are better. The IRS allows greater tax deduction for gifts of cash, stock, or property to a DAF, compared with a foundation. Foundations have to give away 5% of their assets annually, but there are no distribution requirements for DAFs.

All DAFs have a board of directors as part of their structure. Many of them are willing to maintain the gifting goals of a donor after their death and insure that the recipient charities are eligible for the grants each year. At my firm, we have been asked to serve as part of clients’ DAF’s adviser team, to which we have agreed. Upon Jonathan’s death, we will continue to monitor his charitable recipients for quality of services, efficiency, and results — all very important goals of Jonathan’s.

You have many options to choose from. DAFs come in many shapes and sizes, from local community foundations to national organizations. Most of the independent brokerage firms have their own funds, with minimum initial contributions as low as $5,000.

With a little research, a family should be able to find a suitable home for their estate and leave a lasting legacy — whether they are rich, Bill-Gates-rich, or not wealthy at all. To learn about finding the DAF that fits you or your loved one’s vision and values, one way to get started is to check out the community foundation locator at the Council on Foundations.

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Scott Leonard, CFP, is the owner of Navigoe, a registered investment adviser with offices in Nevada and California. Author of The Liberated CEO, published by Wiley in 2014, Leonard was able to run his business, originally established in 1996, while taking his family on a two-year sailing trip from Florida to New Caledonia in the south Pacific Ocean. He is a speaker on investment and wealth management issues.

MONEY Financial Planning

How to Be Charitable…and Hold Onto Your Money

Bench in Yosemite Valley.
Bench in Yosemite Valley. Geri Lavrov—Getty Images

You can inexpensively plan for a donation from your 401(k) while retaining access to the account if you need it.

After they got married, I met with Luke and Jane, both 33, to think through how much they are going to spend and how much they are going to save. Luke is a gentle soul. It took him many years to find work that he could feel good about, and he currently has a good-paying job. He wants to keep working forever.

Part of him seemed shocked, although happily so, by his fortunate financial situation. He feels that he and his wife together make a lot more money than they need.

If he knew their finances were always going to be the way they are now, he’d give more money away. He gets a lot of satisfaction from financially supporting changes he feels are positive in the world.

One of the things that Jane loves about her husband is his philanthropic bent. But she’s also concerned they might give a lot of money away and then regret it. They plan to start a family within the next five years. How can they decide to give money away when they might need it later?

I left our meeting somewhat frustrated, because I didn’t have a great answer to their conundrum.

Meanwhile, I was working on a book about connecting all areas of finances with meaning. Previous authors have explored how to consciously spend or invest. But I wanted to write about not only spending and investing, but also taxes, estate planning, and insurance — all areas of personal finance.

The book idea sounded good. Then I had to write the thing. I know a lot about the subject, but when I got to the chapter about estate planning, I drew a blank.

After what I deemed an appropriate length of procrastination, I started writing the dreaded estate chapter. I found myself thinking about Luke. At the same time, I was reviewing everything I do when I talk to clients about estates, focusing on the angle of more meaning. More meaning.

Then some ideas started sparking.

Reviewing 401(k) beneficiaries, for instance, is something I talk about during estate planning meetings. Seems mundane, but wait, there could be something there. This is cool, I thought as I wrote.

What if Luke designated someof his 401(k) — or all, if he really wanted — to charity? Say, the National Parks?

It wouldn’t cost Luke a dime now. Plus, it’s totally revocable before he dies. If and when Jane and he have kids, he’ll revoke the designation. So during his critical period of family financial responsibility, he can leave his 401(k) to Jane and the family. But if it’s just Jane and him, setting aside some money in case of his untimely death is one answer to the conundrum — how to give more without regretting it.

Other details I uncovered when I wrote and researched this strategy: Larger, well-established charities are more likely able than smaller ones to handle a 401(k) donation. The theater company down the street generally won’t.

Setting up this designation doesn’t cost anything; Luke doesn’t have to talk to an attorney. Jane will have to sign off on it, but she’s fine with it.

Other perks? He might be able to designate what his 401(k) donation is used for, in the case of his death, and the charity might recognize him on a plaque at his favorite park. Charities vary on how they recognize these gifts. The recognition isn’t just for ego gratification; it encourages other people to give, too.

Luke doesn’t have to risk their retirement, and I’ve got a good idea for my estate chapter.

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Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

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