Consider This . . . Charitable Gifts

By Jimmy R. Hammond, CPA

Record levels of contributions related to the September 11 tragedy are currently estimated at $1.9 billion. Reported bookkeeping irregularities of corporations are too numerous to count, and mainstream charities are having some accounting irregularities of their own. So, I thought it might be appropriate to review charitable giving and related issues as we get ready to select our preferred charities and make our final contributions for 2002.

I can't talk about Dec. 31, 2002, issues and decisions without first reviewing past charitable gift practices of Americans in general and Marylanders.

According to the American Association of Fundraising Council (AAFRC at www.aafrc.org---graph shown), the U.S. philanthropic activities generated $212 billion for charities in 2001; 75.8 percent or $161 billion came from individuals, while 4.3 percent or $9 billion came from corporations. The charitable gifts mix shows 38.2 percent going to religious organizations, 15 percent going to educational organizations, 18.3 percent going to human services and so on. See the chart for a complete breakdown.

It is quite clear that, as a group, we continue to be a most generous nation, possibly the most generous. To assist both charities and donors, the AAFRC has published a voluntary "Donor Bill of Rights" which can be viewed in its entirety at www.aafrc.org/counsel/donorbor.html. These rights are based on the following statement by the AAFRC: "Philanthropy is based on voluntary action for the common good. It is a tradition of giving and sharing that is primary to the quality of life. To assure that philanthropy merits the respect and trust of general public, and that donors and prospective donors can have full confidence in the not-for-profit organizations and causes they are asked to support, we declare that all donors have these rights."

The American Institute of Philanthropy, another watch dog group at www.charitywatch.org/guide.html, will provide you with a sample report (for just $3) entitled the Charity Rating Guide which is part of their Charity Watchdog Report. Their reports are intended to inform donors about how approximately 400 national charities spend your money and keep donors up to date on current issues related to charitable giving.

If you are more interested in the operational efficiency of your favorite charity and the costs required to support their projects, check out www.charitynavigator.org. This site provides a detailed analysis of operating expenses and ratios from food banks to animal shelters. This site analyzes the appropriate levels of expenses for fund raising and project fulfillment. Another small feature of this site is a factoid box on their home page. I learned such facts as: Bill and Melinda Gates gave $2 billion dollars in Microsoft stock to the Gates Foundation in 2001, or 1 percent of all charitable giving in 2001; and the average value of a volunteer hour rose to $16.05 in 2001, up from $15.39 in 2000.

If you haven't figured it out yet, this is one of the largest financial sectors in the American economy and it all comes from sources such as the change collected by churches on Sunday to the Bill Gates contributions of stock.

There is ample evidence from my small sampling to suggest that the rates of contributions have begun to moderate. The Philanthropy Journal indicated that, while we have collectively set a new record for giving in 2001, it represented a 2.3 percent decline from 2000 when compared to the Gross Domestic Product (GNP).

Charitable giving data is also constantly analyzed by the Internal Revenue Service, then printed and posted to the Internet for public consumption. According to 1999 IRS data, Marylanders filed 2.5 million tax returns. Of those, nearly 1 million itemized their deductions and, of those filers, the average charitable gift deductions totaled $3,207. This data placed Marylanders at 28th in the state rankings or $4,592 below Wyoming, the first-place state for charitable gifts.

The IRS data does not estimate lost tax revenue, but at an average of 20 to 35 percent at the Federal tax level and another 3 to 7 percent at the State tax level, the combined taxes lost could be between $48 and $89 billion dollars per year. At these charitable gift levels, the government will continue to aggressively scrutinize these deductions at every available opportunity. The absence of proper documentation or an adequate valuation in the case of gifted property might lead to an ugly surprise if audited.

For information about organizations that are qualified to receive charitable contributions, see IRS Publication 526, Charitable Contributions. Publication 526 also describes contributions you can (and cannot) deduct, and it explains deduction limits. For assistance about valuing donated property, see IRS publication 561, Determining the Value of Donated Property. These documents can be downloaded from the IRS web site at www.irs.ustreas.gov/forms_pubs/pubs.html.

I'm sure I didn't answer all of the questions you might have about this subject, but I do hope that this will prompt you to look more closely at your favorite charities before you make your final contributions on Dec. 31. Keep up the good work!

If you have comments or suggestions, or have an idea for a future computer or business topic, e-mail me at jimmy@capitalconsultant.net or AnnapMag@aol.com.