Passive Income

I stopped by a local grocery store on the way home from work tonight. I did not realize that the Salvation Army started ringing their bells so early. Hearing the sound of those bells brought back bad memories of avoiding eye contact with the volunteer and going in the exit door to avoid their polite “hellos”. It is not that I did not want to give, I just did not have the money to do so.

During my crusade to become debt free, I have learned how to implement planned giving as part of my overall financial plan. Now that I have a plan, I know when and where I can give, which allows me the freedom to say no.

The following are my top five tips to consider when using planned giving.

1. Budget – I truly cannot stress the importance of a good budget enough. Just as you would budget for your monthly power bill, you should budget your charitable contributions. When you receive a request for a donation that falls outside of your planned giving, it becomes increasingly easy to say no. Tonight I was able to give freely and not worry about the consequences to my overall budget.

2. Be Informed – Ask plenty of questions about your chosen charity. How much of your gift will be used for administration costs? How much will actually be used supporting the organization’s stated mission? Ask them for their 990 tax form. This form provides a wealth of information. If they will not provide this information, it should be a red flag and you may want to consider giving elsewhere.

3. Keep Detailed Records – For the most part, a canceled check will suffice for any gifts under $250. If you give an amount greater than $250, it is wise to obtain a receipt from the charity specifying the amount and description of the gift. Planned giving works best is you stay organized.

4. Understand basic tax laws – While most qualified donations can be deducted from your Adjusted Gross Income (up to approximately 50% of your AGI), you need to be aware of anything that may affect the extent of the donation. If, for example, you receive a premium (dinner, shirt, etc) as a result of your donation, the amount of the donation that can be deducted from your AGI is reduced by the Fair Market Value of the premium received.

5. Learn to Say No – Realize that you can say no to anyone requesting donations. You need to set your own standard for what is acceptable. Many churches recommend that you tithe (which literally means a tenth). In some circumstances, 10% may not be enough to satisfy your standards (ie Bill Gates, Warren Buffett, etc). In others, giving 1% of your income may be currently impossible. When you learn to become debt free, planned giving becomes much easier.

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