Giving to charity: doing the best you can

By now, your mailboxes (IRL and virtual) are probably crammed with year-end catalogs and heart-rending appeals for donations. But just as with spending, we want to maximize the use of our hard-earned dollars when we make charitable donations.

As I’ve suggested before, it’s worth checking out any potential charity with Guidestar.org and Charity Navigator. These ratings groups aren’t infallible, but they can give you some idea of how well your money will be spent. There are lots of well-known charities whose funds seem to go mainly to publicity and their CEO’s salary. Really, look up a few that come to mind—you’ll be shocked. And just because the charity says they focus on minorities, or women, or autism, or your favorite religious orientation doesn’t mean they’re good stewards. As Harry Truman once said, when anyone prayed too loud in the Amen corner, you’d better go home and lock your smokehouse.

Many of us are considering directing more of our charitable contributions to advocacy organizations this year and going forward.  However desirable and necessary such donations are, they may not be tax-deductible. For example, donations to the American Civil Liberties Union are not tax deductible, although donations to their information and education arm, the ACLU Foundation, are. Another organization that interests me greatly, the National Lawyers Guild (motto: Human Rights Over Property Interests) is also an advocacy organization, and donations are not deductible except to their foundation. However, the Southern Poverty Law Center, which constitutes its mission as fighting hate through education, is a tax-deductible charity organization. You want to look for the term ” 501 (c) 3″ if you’re looking for the tax deduction.  Of course, if you care passionately about current issues, you may not feel the tax deductibility of your gift is the most important factor, or you can allocate some portion to advocacy and the rest to educational or service delivery organizations.

Most of us have a tendency to give small amounts to any request that crosses our paths. However, I’d encourage you to consider a more planned approach. Giving larger amounts to fewer charities actually helps them: it saves on fundraising, processing, and other administrative costs.  Consider where your priorities lie or where you believe there is the most need: rights advocacy (disability, women’s, ethnic & racial groups); international poverty; animal rescue; anti-violence; gun control; legal change are all areas to consider.  While you’re at it, try not to use a credit card until you determine if the charity will be charged the fee for use by that card company (some don’t charge charities, some do).

As with any money management, there will always be more demand than funds available, so do think about your priorities. Many of these organizations will be particularly embattled or short of funds under the next administration, so need for your thoughtful contributions can only grow.

Antiques Roadshow & investments

Vintage Jewelry

Sure, I love it. So much so that when Antiques Roadshow announced that it was going to be in Chicago for the first time in years, I applied for the ticket lottery immediately. They had 19,000 applications for 6,000 tickets, so I was thrilled when we won two tickets.

If you’re a fan, you probably find it at least as addictive as chocolate truffles. Watching other people live at the show, I spent a lot of time wondering just what the show offers. Everyone hopes they’ll pick something from a trash bin that turns out to be worth six figures, and we saw one or two folks who looked like they were being pulled aside for the big reveal.  However, given the lines we saw for painting appraisal, and the absolutely horrible paint-by-numbers art being carried in, I can tell you without a doubt that most of us have absolutely no taste in or knowledge of art. Really, I don’t think I could bear to be an appraiser on that beat, the stuff was so horrible. It must be a thrill to their eyes, too, when they finally spot something good. So, my first lesson is that if you’re going to hang it on a wall, make sure it’s something that has meaning for you, because value is questionable at best.

My second lesson while there is that not only do we probably have little idea of the value of collectibles or much ability to judge such value, but dealers don’t really have a clue, either. You probably know that if you’ve watched many Antiques Roadshow broadcasts, and see the terrible prior advice people have been given, but this time it’s personal. I brought a set of jewelry to be evaluated, which I bought at a reputable antiques show (the Winnetka Antiques Fair) from a reputable and long established dealer. Not one single thing I was told about the jewelry when I purchased it was accurate, at least according to the Roadshow appraiser. It wasn’t the karat weight I’d been told (14kt vs. 15kt.) it wasn’t from the era it had been labeled (U.S. Civil War vs. 1870s), and it wasn’t made where I was told (Italy, vs. England). The only “fact” that slightly mattered to me was that it wasn’t Civil-War era, as I was heavily interested in Civil War re-enacting at the time and that was the “fact” that thrilled me into purchasing the piece.

The third lesson I learned is that the demographic of viewers appears to be baby-boomer or older. Everyone is hoping that something from their early life, or that they inherited, has value. It’s a way of recouping your youth through your possessions—and finding that the changes over time that you see in yourself (perhaps losses) can be redeemed by the increased value of things that once had very low prices. Perhaps it’s innate in us that we want to have something of value that we can pass on to our children.

My biggest fear was that the jewelry would turn out to be worth less than what I paid for it, so it was a great relief to find out that it was worth about 60% more than its original price tag. But I have to confess, one of the games I play when watching the show is, “was it a good investment?”  And mostly, I have to answer no. I purchased this jewelry in 2000. If I’d have plunked my money into, say, the fairly conservative Vanguard Wellington fund instead, I’d have a nearly 200% return for the period. Plus, I wouldn’t have paid to insure it for the last 14 years (although I would have had to pay taxes on the Wellington dividends). You can play this game too—listen to how long the person has owned the object, take the amount they paid, and double it for every 10 years of ownership. If they’re not doing at least that well, financially at least they’d have been better off investing it in a balanced fund portfolio. But truthfully, it was much more thrilling at the time to own the jewelry than it would have been to put the same amount into a mutual fund. Fourteen years later, I’m not so sure. I’ve probably worn the darn thing 3 or 4 times.

Then, there are the things that don’t hold their value—most recently, antique dolls and furniture. You may not buy these things strictly as an investment, but you should be very, very careful that you pay on the low side of whatever the current market value is, be able to judge quality pretty well, and be willing to hold the object for as long as it takes for the category to rebound. And be sure it’s insured and properly cared for in the meantime. Probably, don’t own cats or have small children.

The final ouch! is the taxes on collectibles. I have to believe that a fair portion of those who get a big pleasant surprise are thinking about contacting their friendly local auction house.  I have never seen this mentioned on the show, but if your tax bracket is above 15% on ordinary income, you’re going to be hit with a 28% capital gains tax on the gain you make from the sale (most other long term investments are taxed at no more than 15% currently). Maybe your kids actually do want to inherit that ugly picture.

Middle class tax “relief”

 

Mitt tin man

Mitt tin man (Photo credit: JonMartinTravelPhotography)

I’ve been trying to keep a lid on my personal political views on the off chance that there’s someone in my area who actually likes Mitt but jeez, I’ve just about bitten through my tongue. And I’m only grinding my teeth over the second debate—I got stuck on Mitt announcing with glee that under his tax plan (I guess he has one somewhere) the middle class taxpayer would no longer pay taxes on dividends, capital gains, or savings.

Ugh, these dumb statements are making my box of rocks so heavy that I just have to say something…and Barack, why didn’t you jump on that?  You need a fee-only financial planner on your debate team. (If I have one complaint against our President, it’s that he has no instinct to go for the jugular. Actually, maybe that’s not so bad.)  Aside from the fact that none of us actually pays taxes on savings, a large share of my clients aren’t exactly living off their currently-taxable dividends or capital gains, either. Whoops, that would be Mitt himself, who might just get out of paying anything at all, much less the pitiful 13% or 14% his accountants couldn’t figure out how to weasel out of.

I’m happy when my clients are maxing out their 401ks or 403bs and maybe managing a Roth or some sort of IRA and a college savings plan. For most people, the bulk of their investments are already sheltered in these accounts, or plunked into their house. People who have significant investments outside of their retirement savings are also less likely to be “middle class” by any usual income tax definition—they’re at least waving at the 1%. BTW, the top 1% is actually those earning over $343K, but since both candidates seem to like a $250K figure, let’s just go with that.

So let’s just say you somehow managed to accumulate or inherit $100,000 in a brokerage account or some mutual funds that are in plain vanilla taxable accounts.  Let’s say you plunked that $100K in a Total Stock Market Index fund, which yields about 1.8% right now (I’m not considering capital gains here, just the dividends, because I’m assuming for now that you just hold on to it). So, each year you’re getting $1,800 in dividends and paying $270 in taxes. Gee thanks, Mitt, I’d sure like to give up my home mortgage interest deduction and get back $270 instead. In other words, these ballyhooed savings are pretty insignificant compared to the stuff that might really count—like more secure retirement funding, college cost reduction, etc. I’d be willing to give up that $270 if I didn’t have to cough up $25K/year for college or wring my hands about long-term care insurance or the myriad of other things we Americans are “free” to purchase in the open marketplace, but which every other Western nation provides for their citizens.

How about retired people—maybe that will help them? Let’s ignore the 1/3 of retirees that are living on Social Security alone—after all, Mitt does (ignores them, that is).  For most of the people I see who would fall into the “middle class”, the bulk of their income is coming from 401ks, 403bs, etc., and those withdrawals are taxed as ordinary income, anyway. There are very, very few people who could be classified as both “middle class” and who have significant income from capital gains or dividends. There’s another name for people who live on investments that generate significant capital gains, interest, and dividends—they’re called “rich”. Or maybe, friends of Mitt.

And what about the clients that ARE coupon clippers (bonds, not newspapers)? No one yet has come into my office saying that lower taxes would solve all their money problems. Across the board, my clients are worried about retirement, college costs, job security or business viability, and the cost of long term care. On the other hand, I do see plenty of people who feel they’ve been robbed by the financial “services” industry, whatever their income, investment or education level. But I doubt that that’s on Mitt’s radar. After all, those folks are friends of Mitt, too.

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