Subscribe Now to The Online Journal and benefit from many exclusive online features, including access to Journal archives and personalized news tracking. advertisement TODAY'S MOST POPULAR 1. Dems Face Two Must-Wins in Senate 2. A New Breed of Watchdog for Election Day 3. Exit-Poll Measures Aim to Plug Leaks to Blogs 4. A Spectator's Guide to Key Races 5. Wall Street's Green Christmas

Why Not Be Smart as Well as Generous

Holiday catalogs probably aren't the only thing crowding your mailbox these days. As the year winds down, requests for charitable gifts typically multiply -- from your college, your religious institution and a host of groups familiar and unfamiliar.

As you decide on year-end giving, make sure you do so with your head as well as your heart. That might mean spending a few minutes doing a background check on an unfamiliar charity or giving away securities rather than cash to increase your tax benefits.

"Look for ways to maximize the potential of your donations," because some strategies will help your charitable dollars go further, says Brendan J. O'Keefe, an accountant and financial adviser in Orleans, Mass.

This year, older Americans have a new opportunity to make charitable gifts directly from their individual retirement accounts. But people also have to deal with new limitations on gifts of clothing and household items, and a requirement for expanded documentation that will kick in Jan. 1.

Here's what you need to know.

New IRA Opportunity

For the rest of this year and 2007, taxpayers 70½ and older can contribute up to $100,000 a year directly to charities from their IRAs without triggering federal income tax on the IRA distributions.

Such gifts count toward people's required minimum distributions, which would usually be taxed. But taxpayers can't also take a deduction for the charitable gift.

For some taxpayers, making a gift this way will have the same tax consequences as taking a taxable IRA distribution and writing a check to the charity. But the provision is a boon to people who don't itemize their deductions.

Note that "the gift itself must go directly from the IRA to qualified charities" or the withdrawal will be taxed, says Mr. O'Keefe.

Give Shares Instead of Cash

Consider donating appreciated assets such as stocks and mutual-fund shares rather than cash. Say you have $10,000 of stock that you purchased years ago for $1,000. If you wanted to sell that position and move your money elsewhere, you'd pay federal capital-gains tax on your $9,000 gain at rates up to 15% -- plus brokerage commissions and maybe state tax as well.

You avoid tax on the gain if you donate the securities, and the charity won't have to pay tax either. You can deduct the market value of the shares as a charitable gift if you itemize deductions.

To give appreciated stock, you have to have held it for more than a year and it must be publicly traded. Submit a letter of request authorizing your broker to transfer ownership to the charity or simply hand over a stock certificate.

New Rules on Clothes, Cash

Since Aug. 17, gifts of clothing or household items each worth $500 or less have been required to be in at least "good" condition to qualify for a deduction. You can still deduct a gift of an item in lesser condition if the value is more than $500 -- and if you attach a "qualified appraisal" of that value to your tax return.

As before, appraisals are also required on gifts worth more than $5,000.

The Internal Revenue Service expects to provide guidance "shortly" on the tricky issue of valuing noncash gifts, says Nancy Mathis, an IRS spokeswoman.

In the meantime, the onus of determining the "fair market value" -- which is the thrift-store price and not the price you paid for your items -- rests with you. The Salvation Army offers a "Valuation Guide" online at www.satruck.org. There are also software tools such as Intuit's ItsDeductible, which costs $19.95 at itsdeductible.com and is included in some versions of the company's TurboTax tax-preparation software.

To back up your deductions in case of a tax audit, Bill Fleming, a managing director of private-company services at PricewaterhouseCoopers in Hartford, Conn., suggests making a list of what you donate, taking pictures, keeping purchase receipts if you have them and getting a thank-you note from the charity.

The rules on deducting monetary gifts will change Jan. 1, for tax year 2007: For gifts of less than $250, you'll need to have a bank record, a cancelled check or a receipt from the charity. That means you may want to put a check rather than cash in the collection plate, or be sure to get a receipt.

For gifts of $250 or more, taxpayers will continue to be required to get a thank-you note or gift receipt from the charity. Those acknowledgements should contain the name of the charity, the date of the contribution and the contribution amount (reduced by the value of any goods or services received in exchange). "We are constantly going back to charities and getting better letters," says Mr. Fleming.

Check for Matching Gifts

Your company may match a percentage of your charitable donation, up to 100%, for gifts to certain types of institutions.

Such a program, which can effectively double your giving, "increases loyalty to the company and increases goodwill in the community," notes Diana Aviv, president of Independent Sector, a coalition of charities and foundations.

There are currently 8,600 employer matching-gift programs, according to Kintera, a provider of donation software. Ask your company if it has a program or look it up at matchinggifts.kintera.org. In addition to listing program specifications, you'll see who to contact at your company.

Typically, you have to get a matching-gift form from your company and send it to the charity.

Check Out That Charity

If a charity you haven't heard of crosses your radar, start at the charity's Web site to learn more. You can also search at an online nonprofit information clearinghouse, GuideStar.org. Then check how a charity measures up according to various monitoring organizations.

A Better Business Bureau Web site, www.give.org, evaluates charities based on 20 standards, which range from making financial statements available upon request to ensuring that no more than 35% of contributions are spent on fund raising. About 55% of charities that are evaluated meet all 20 standards, says Bennett Weiner, chief operating officer of the Bureau's Wise Giving Alliance.

At CharityNavigator.org, you can see how a charity's spending breaks down among administrative expenses, program expenses and fund-raising expenses. The site suggests you favor charities that devote at least 75% of their budgets to program activities. The nonprofit group also rates charities with zero to four stars based on their financial efficiency and their potential to expand programs.

	Sponsored by