If you plan to make significant charitable gifts over a long period of time, a donor-advised fund (DAF) can be an attractive alternative to a private foundation.

While private foundations are separate charitable entities operated by their donors, a DAF is merely an account set up with a host organization, such as a community foundation or educational institution. You make contributions to the account, and the organization makes grants to qualifying charities in your name. Although the organization legally owns your contributions and has ultimate control over grants, you can advise the organization on how to invest your contributions and how grants should be made.

Donor-advised funds have become popular recently because they require less money, time, legal assistance, and administration than private foundations. DAFs also enjoy greater tax advantages.

Generally, you can open a DAF with a smaller initial contribution than would be required with a private foundation (as little as $10,000). And because DAFs are qualified public charities, you generally get an immediate income tax deduction for your contributions (subject to the usual limitations).

Additionally, while private foundations are required to distribute a minimum of 5% of their assets each year, DAFs currently have no such minimum distribution requirement. You can let your account build up tax free for many years, deferring distributions until a later date. Further, DAFs are not subject to excise tax as private foundations are.

Finally, DAFs don't need to fulfill many of the reporting and filing requirements that are imposed on private foundations. And because the host organization handles any legal, administrative, and filing requirements (including tax returns), you're completely freed from these responsibilities.

As the holiday season and the close of the year quickly approach, you may be planning to make gifts to family, friends, and charities. You can be generous to yourself, too, by making those gifts in a way that maximizes your tax benefits. Here are some tips for tax-wise giving.

Giving to family and friends

Gifts to family and friends may be subject to federal gift tax (and perhaps state gift tax), and gifts to grandchildren may also be subject to generation-skipping transfer tax (GSTT). However:

• Gifts to spouses are gift tax free.
• Currently, you can give tax free up to $12,000 per recipient ($24,000 if the gift is from both you and your spouse) under the annual gift tax exclusion. Gifts over that amount are tax free to the extent of your $1 million lifetime gift tax exemption ($2 million lifetime GSTT exemption).
• If you fund a 529 plan for your child or grandchild, you can contribute up to five years' worth of gifts at once; that's $60,000 per child or $120,000 if you and your spouse make the gift.
• You can make unlimited tax-free gifts if you directly pay medical bills or college tuition on behalf of a recipient.

Giving to charity

Donations to charity are completely gift tax free and are also generally deductible for income tax purposes, subject to the usual limitations. However:

• Only donations to "qualified" organizations are tax deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions, or you can ask the organization for a copy of its tax-exempt status determination letter. In addition, churches, synagogues, temples, mosques, and government agencies are eligible to receive deductible donations.
• Avoid giving cash, and keep records (receipts, canceled checks) of all your donations, regardless of the amount. Although the value of your time serving as a volunteer is not deductible, out-of-pocket expenses (including transportation costs) directly related to your volunteer service to a charity are usually deductible.
• You must obtain a "qualified appraisal" for donations of property worth over $5,000 (other than cash and publicly traded securities), and you must attach an appraisal summary (IRS Form 8283) to your tax return.
• Donated clothing and household items must be in good condition. You may claim a deduction of more than $500 for any single item, regardless of its condition, if you include a qualified appraisal with your return.
• For 2007, an IRA owner age 70½ or older can directly transfer income tax free up to $100,000 per year to an eligible charitable organization. You can take advantage of this provision regardless of whether you itemize your deductions.
• Consider donating appreciated securities that you've held for more than a year. You'll generally get a full fair market value deduction and avoid capital gains tax, too.
• Consider grouping donations and making gifts in alternate years to create a larger deduction and opportunity to itemize.

Charitable giving can play an important role in many estate plans. Philanthropy cannot only give you great personal satisfaction, it can also give you a current income tax deduction, let you avoid capital gains tax, and reduce the amount of taxes your estate may owe when you die.

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If you donate your car to charity, you may claim a tax deduction for the donation if you itemize your deductions on your federal income tax return. To get started, you'll need to pick a qualified charitable organization, determine the fair market value (FMV) of your car, and obtain the necessary documentation for your donation.

Pick a qualified charity

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