Be charitable, but be smart about your giving

We spend much of our days feeling uncharitable: Towards the guy who won't let you merge, for example, or your cousin Bill, who, if his bosses had known about how much he smoked, wouldn't have given him that job at the fireworks factory.

Sometime around late November, however, people start to feel charitable, and even give money to favorite causes: The Red Cross, The Lemur Conservation Foundation, Aid to Relatives in Low-Earth Orbit.

Giving is a good thing. But when you give to charity, it pays to be careful. You need to make sure your charitable donation does more good for the cause than it does for the fundraisers, for example. You need to maximize the tax impact of your gift, because everyone can use a deduction. And you need to make a plan for next year.

Let's start at the beginning: Not all charitable organizations are efficient, and some are actively criminal. The Internal Revenue Service, for example, recently warned that some charities collecting for Philippine typhoon donations are simply scams preying on the unwary.

One hint: Web sites whose names are close to – but slightly different from – legitimate charities. Farmaid.org? Charity. Farmade.org? Nope. You can check whether a charity is legitimate via the IRS's Exempt Organizations Select Check at IRS.gov. You can also get a good idea of how well-run your charity is at guidestar.org and charitynavigator.org.

Once you've chosen a charity and feel assured it's legitimate, it's time to figure out how to donate. The fastest way, of course, is to write a check. But donating appreciated stock can often be a better way to contribute, says Carol Kroch, managing director of wealth and philanthropic planning at Wilmington Trust.

Suppose, for example, you have 100 shares of Tesla that you bought on Jan. 1 of this year. The shares were worth $33.87, for an initial investment of $3,387. They're worth $122.33 now, or $12,387, and you're sitting on a $8,850 gain.

The stock hasn't exactly been on fire lately, howev! er, and it's well off its record high of $193.37. If you were to sell your shares, you'd owe short-term capital gains taxes on your gain. Short-term gains are taxed at your regular income tax rate, which could be as high as at up to 39.6% -- meaning you could be on the hook for $3,504.60.

If you gave your shares to charity, however, you'd get to deduct the full value of the stock from your income as of the day you donated it. As a bonus, you'd also sidestep the $3,504 in short-term capital gains taxes. "You get more money for the charity and more money for you," Kroch says.

If you're going to donate appreciated stock for the 2013 tax year, you'd better get cracking. "Sooner is better," Kroch says. One reason: While many large charities are adept at taking appreciated stocks, others are not. The window for donating appreciated stock slams shut at midnight on Dec. 31.

The process of donating takes longer if you have paper shares or more complex investments you want to donate, says Greg Jordan, national philanthropic investment officer for Wells Fargo Private Bank. "You want to leave time measured in weeks, not days," Jordan says.

You might also consider giving to a donor advised fund, which allows you to make a charitable donation this year, and dole out your money to your favorite charities in future years. In most cases, you can also contribute appreciated stock. "I think donor advised funds can be very effective for those who are ready to make a gift, but are not able to figure where it should all go," Kroch says.

Fidelity Investment's donor-advised fund, for example, allows you to make a 2013 donation to the fund, which you can deduct from your 2013 taxes. Your donation can be invested in several different types of funds, from asset allocation funds to stock, bond and money market funds. Minimum initial contribution is $5,000.

As with all donor-advised funds, your grants from the fund have to be legitimate charities recognized by the Internal Revenue Service. The "! Send My K! id to Harvard Fund" won't fly.

You have plenty of donor-advised funds to choose from: Charles Schwab & Co. and Vanguard, for example, also offer donor-advised funds.

Finally, if you'd really like to donate more to charity but find yourself strapped this holiday season, then make a resolution to have a giving plan next year. It's a lot easier to budget $50 a month than $600 in December. Most major charities will be glad to tap your bank account on a regular basis, and have staff on hand to help you set it up. Or you could arrange to have a check sent every paycheck to the charity of your choice.

And, says Jordan, consider giving your time if you don't have the money. You won't get a tax deduction, but you get that same good feeling. "More and more, I see people being thoughtful about their expertise," he says. "They look at what they are good at, and apply that to charity." You don't have to swing a hammer or feed orange slices to marsupials. You can read to children, help audit a local church's books or play music at a charitable event. It's all good.