Charitable Giving Gone Awry: 5 Mistakes to Avoid

Donating unusable items or giving with strings attached doesn’t help nonprofits.

Toy drive and donation jar during the holidays
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December is prime fundraising season for nonprofit organizations, both because of the giving spirit of the season and the chance to score a last-minute tax deduction for those who itemize. A 2012 survey by market research company Ask Your Target Market found that 40 percent of respondents who sometimes give to charity said they are more likely to give during the holiday season than they are the rest of the year.

A new grassroots movement called #GivingTuesday aims to do for nonprofits what Black Friday and Cyber Monday have done for retailers by kicking off the end-of-year giving season and raising awareness about philanthropy on social media. The second annual #GivingTuesday began on Tuesday, Dec. 3, and many organizations are still actively soliciting donations for their campaigns.

[Read: Creative Charitable Gifts for the Holidays.]

While most charitable donations are born of good intentions, not all donations have a positive impact. Here's a look at some of the mistakes even well-intentioned donors make as well as strategies for avoiding them.

1. Giving impulsively. Donating because you're moved by a phone solicitor or a friendly fundraiser on a street corner isn't the best strategy. In some cases, solicitors use a name that sounds similar to a popular charity but isn't. "Be careful when you're being solicited on the phone," says Eileen Heisman, philanthropy expert and CEO of National Philanthropic Trust, which provides philanthropic expertise to donors and foundations. "Ask them to send you something in the mail. Get some written information, and make sure it's a legitimate charity." Websites such as guidestar.org and charitynavigator.org can help you research the charities you may want to support.

2. Making a restricted gift. Some donations come earmarked for a program or beneficiary the donor feels strongly about or have specific instructions on how to use those funds. However, small donations with strings attached can create headaches for the organization as it tries to carry out the donor's wishes. For instance, many donors want their money to support programs rather than overhead, but organizations still need to cover administrative costs. "Unrestricted gifts are the best kind for donors to make, as those monies are not typically what grant funders provide," says Stephanie Cory, executive director of the Epilepsy Foundation of Delaware and a board member of the Association of Fundraising Professionals. "Most grants are program- or project-specific and do not cover what nonprofits need to survive, which is office space, technology and staff." If you trust a charity to use your money wisely, consider making an unrestricted gift.

[See: 9 Little-Known Ways to Pay Fewer Taxes.]

3. Donating unusable or inappropriate goods. Dropping off items that are ripped, broken or outdated isn't helpful to most nonprofits. The resale value of such in-kind donations is minimal, and not all nonprofits are even in the resale business like The Salvation Army or Goodwill, so they may need to pay to dispose of them. Depending on the mission, even new items might not fit a nonprofit's needs. "If teddy bears are given to a hospital without being in proper polywrap, they can't really be used [due to infection control standards]," says Jacqueline Hart-Ibrahim, CEO of the Starlight Children's Foundation, which supports pediatric health care facilities and created an online wish list for specific needs such as crayons and games for sick children. Cory suggests that donors call a nonprofit before giving in-kind donations, unless an item is advertised as accepted or listed on a wish list for the nonprofit. "Even something that seems helpful like a gently used computer may not be acceptable because of networking issues and the need for specific software," she says.

4. Selling appreciated securities and donating the proceeds. If you've held securities like stocks for more than a year, those appreciated assets can be donated directly to charity without incurring capital gains tax for you or the charity. However, some people make the mistake of selling the asset first and donating the net cash to charity, according to Heisman. "If you're sitting on appreciated securities, don't sell them first," she says. "Donate the stock to charity, and let the charity sell it." Because of the tax code, the charity does not pay capital gains, and the donor typically gets to deduct the full market value of the gift. Heisman suggests consulting your tax professional before selling or donating securities.