There’s no doubt about it: the current tax laws are pretty confusing for most of us. While some people were quick to call the President a sell-out when he allowed Republicans to preserve tax cuts for the wealthy last year, the fact that he did it in an effort to form a deal that would extend unemployment benefits makes it understandable. But how were the Republicans able to pull it off? Can tax law be so easily changed? Actually, yes. Our current tax laws are in the midst of rotation. Tax breaks that were enacted a few years ago in an effort to bolster the economy were set to phase out within a few years (as evidenced by tax cuts for the wealthy, before they were extended). And one of the many breaks that were given went to elderly citizens who wished to donate a portion of their IRA income to charity. But will that tax break continue this year? Absolutely.

To understand how it works, you first need to understand how an IRA works. You put money in before you retire, up to a certain amount each year. As you continue to add to your account, it also gains interest. The nice thing about an IRA is, you get to put money in pre-taxation (deducting it from your annual income), so that you are able to save as much as possible (and earn as much interest) before you retire. Then, when you reach retirement age, you begin to receive a disbursement from your IRA in set increments each year, which is taxed as income. What most people don’t count on is how much money they can accumulate in such an account. By the time they retire, they could be getting a large enough disbursement that it sends them right into the next tax bracket, completely messing up their finances.

So what current tax law allows is for charitable contributions directly from the IRA disbursement. Elderly individuals who don’t wish to pay so much in taxes can instead donate up to $100,000 annually, pre-tax, from their IRA. Since this money is not viewed as income, it doesn’t need to be listed on taxes, nor is it required to be cited as a deduction (allowing those who do it to avoid dealing with paperwork and caps). It should be noted that although this portion of tax law is set to phase out after 2012, the section pertaining to itemized deductions was done away with in 2010, making such donations subject to a cap. So this is pretty much the only option left for making charitable donations tax-free.

While many elderly might rather have the extra $100,000, despite taxation, the law probably pertains more to those who are getting just a few thousand dollars too much (thus pushing them into a higher tax bracket without giving them any added benefit). If you find yourself in this unfortunate situation, you have at least the next two years to take advantage of the tax break provided for charitable contributions from your IRA.

Sarah Danielson writes for Roth IRA where you can read over rules for Roth IRAs and learn about converting IRA to Roth as well as finding other tools and information to help you on the road to retirement.

With everyone keeping a close eye on where they spend their money these days, it is important to know how to weed out a bad charity. You don’t want your hard earned cash going into someone else’s pocket, however we can’t stop charitable donations all together or the real charities and causes they support will suffer. Let’s take a look at some ways to find the right charity.

Consider The Charity Not The Cause

Most people donate to a charity that supports a cause near and dear to their heart. Whether it be cancer research, saving abused animals or protecting children- you will most likely pick a charity based on who/what they serve. The only problem in this is that you don’t know for sure if your money is going toward the cause or the charity itself. To make sure your money goes to the right place, carefully investigate the charity itself.

What To Look For In A Charity

A good charity is just as concerned with where your money goes as you are, therefore you should look for the following things. The charity should allocate at least 75% of donations toward the cause versus administration, salary and fund raising costs. They should be vigilant in how much money they are spending to receive donations- a good charity will spend a quarter of the amount raised on fund raising….let’s say they raise $100, they should be spending less than $25 to raise that money. You should also be able to view their audited financial statements and income tax forms. If they don’t want to share this information with the public who supports their organization, then look for a charity that will.

Look For A Charity Rating

There are charity watchdog groups which provide ratings as well as the Better Business Bureau. Consider these ratings and do your own research. Just as many businesses use savvy marketing and advertising to entice customers, charitable organizations often do the same, playing on your emotions. By researching your choice before committing to a monetary donation, you can avoid making a decision based on your emotional reaction.

Donate Your Time

When in doubt, consider a local organization. Almost all charitable organizations can benefit from volunteers. By volunteering your time you are making a difference which you can see and feel each time you participate. Professional skills can be helpful as well- use your trade to help lower expenses for the charity.

Finding a good charity might seem like a lot of work, however it is an investment of time that is worthwhile. Many people might feel better by simply writing a check without looking into the charity, however if your money is not going toward the cause, it is not money well spent.

The Haitian people are still in a state of emergency, many fighting for their lives.  Immediate help is needed.  But even after the immediate crisis has passed in the upcoming weeks, rebuilding the city of Port-au-Prince and feeding, clothing, and providing shelter for the poverty-stricken natives who’ve lost everything will be a massive undertaking.  Just because the tide of death has been stemmed does not mean these people don’t still need our help.  That need will continue for months if not years.

Here’s How You Can Help

Here are a few reputable charity organizations in the thick of the action.  I encourage you to seek out other donation opportunities, but also caution that some greedy thieves will attempt to take advantage of your sympathy and syphon well-meaning donations away from the relief effort for their own personal gain.  It’s sad, but that’s life.  Be sure to check out any charity you’re thinking of donating to.  All of the following charities are large, reputable, and very well-known.  They are also registered 501(c)(3) charities, meaning your donations are 100% tax-deductible.

Yele Haiti Earthquake Fund -  Donate online at this site or text YELE to 501501 to automatically donate $5.  The $5 charge will appear on your phone bill.  This is the fund set up by Wyclef Jean, an popular musician and Haiti native.

American Red Cross – You can donate to the American Red Cross online on their donation page.  Be sure to choose “disaster relief” if you want your money to go towards Haitian relief (and the relief of upcoming disasters, wherever they may be).  You can also donate $10 directly to the Haitian relief fund by texting HAITI to 90999.

UNICEF USA Haiti Earthquake Relief Fund – You can donate through UNICEF via their online donation form.  UNICEF’s relief efforts focus on children.

Partners In Health – You can donate to Partners In Health’s Stand With Haiti fund via their online donation page.

Remember, the need doesn’t end when the relief workers start coming home in the next few days.  That’s when it just beings.

More info on other PF Blogs:

@Four Pillars: Please Donate To Haiti Earthquake Victims
@Million Dollar Journey: Haiti Earthquake Relief:  How You Can Help
@No Debt Plan: Save Ways To Help Haiti
@Cash Money Life – How You Can Help the Relief Efforts in Haiti
@Consumerism Commentary – Safe Donations To The Victims Of The Earthquake In Haiti

Benefits Of Donating To A Qualified Charity

There are many benefits to donating to charity, including

• That warm funny feeling knowing you’ve helped those in need
• Helping to achieve positive change in the world, be it curing a disease, feeding the poor, or helping a child get an education
• A nice, fat tax deduction

Not All Charities Are Created Equal

Not all charities are created equal, however.  Furthermore, some “charities” are nothing more than cleverly-disguised scams designed to take advantage of the good will of others.  Getting caught up in one of these scams is a double-whammy since a.) your cause won’t see a dime and b.) you don’t even get a tax deduction for your trouble.

Usually, a valid charity will be registered as a 501(c)3 non-profit organization.  If the charity you’re thinking of giving to isn’t registered as a 501(c)3 and doesn’t file Publication 78 with the IRS, there’s a reasonably good chance your potential charity is a scam.  You can find out if your charity-of-choice has filed Publication 78 using the IRS’s Publication 78 search form.  Very small charities aren’t necessarily required to file Publication 78 so it’s not a fool-proof method, but it’s pretty close.  If you really want to donate to a small charity, you’ll have to do some homework.  Ask your charity’s contact to prove their 501(c)3 non-profit status.  If they can’t, move on.

Now that you’ve verified your charity-of-choice is actually a real charity, it’s time to evaluate whether or not its really the best recipient for your hard-earned money.  This is actually pretty easy.  Just enter your charity’s name into Charity Navigator’s or GuideStar’s search box for a detailed report of that charity’s operational efficiency and exactly what percentage of your donation will go to those in need and not the charity’s administrative expenses.  For example, here is Charity Navigator’s report on the American Red Cross.  As you can see, it gets pretty good marks so you’re probably safe donating your money here.  If your charity gets poor marks and you decide to donate anyway, at least you’re going in with your eyes open.

Save Your Receipt

I’m extremely guilty of donating small amounts to various charities throughout the year and then forgetting about it at tax time, costing me hundreds of dollars per year in missed deductions.  Don’t let that happen to you.  Recently, I’ve started organizing my financial information (tax info, charitable giving, insurance info, etc) in labeled folders.  Before doing my taxes, I’ll pull out the “Charity” folder and review exactly how much of a deduction I’m entitled to, just to make sure I don’t miss anything.  

Follow these tips and you’re sure to have a happy, generous holiday season.