How To

How To Make the Most of Your Charitable Donation

Shutterstock

Many devastating events happened in 2020. Still, many people have a lot to be thankful for. After all, if I told you that a pandemic would sweep our planet, wipe out millions of stock market value, and shut down economies to the point where everyone was locked down in their homes, wouldn’t you say there’s much to be thankful for with over 90% of our country still employed? Silver linings, and all that.

The holiday season always remind us of what we have. And of those who might not have as much. That’s why many people look to donate to charities this time of the year. I know it can be difficult to know which charities to donate to, but don’t let the choices overwhelm you to the point of inaction.

Unfortunately, not every donation is equal these days. For those who want to make the most of their charitable donation, here are a few things to keep in mind.

Make Sure Your Donation is Tax Exempt

If you are looking for a tax deduction, you need to verify that the charity is tax exempt. Not every charity has the proper status. You don’t want to claim a deduction if your donations don’t qualify. The IRS will surely come back with questions. You can, however, go to irs.gov and search for exempt organizations. That will ensure you’re dealing with a charity that allows you to take a tax deduction.

There’s another good reason to check if your donation is tax exempt. There is almost no reason for a donation to a legitimately established charity to not qualify for the exemption. So an alarm should sound off in your head if you can’t find your charity in the IRS website.

Check Charity Navigator

Many of us like to believe that the bulk of our donation is actually going to help people, and not to administration costs. While every organization will need to use some of the funds to actually run the charity, no one wants their donation to mostly go to the salary of the organizer. If you are interested in learning which charities are the most effective, you can use CharityNavigator.org.

The website gives you a glimpse of the financial situation of many charities. It will let you see how much of every dollar goes to help the intended recipients. And how much is sucked up by overhead. They have data on over 160,000 charities. Chances are very good that the charity you are looking for is in their database.

I like to use Charity Navigator whenever I learn about a new cause I want to donate to. It helps me better identify where my money will do the most good. It’s also a good source for double checking their EIN come tax time. The tax forms require you to put in the charities EIN information, so might as well know where to look.

Consider Giving Locally

While I do donate to one national charity each year, much of my charitable donations are local. I like giving locally because I can see the donations at work in my own community. We have a great local food bank, and I sometimes donate there. It’s good because instead of giving money, I’m giving something tangible (in this case, food). I know that donation will go to someone that needs it.

On the monetary side, I have a friend who runs marathons through World Vision. They raise money for clean water in third world countries. And so I donate whenever he has events. I also donate to my church. I know this doesn’t technically qualify as a charity, but a good portion of the church’s intake goes directly to worthy causes in our community. So at least some of that money helps out locally. Look around your community to find ways to give. There are probably dozens of options. Be sure to look for tax exempt charities that do good work in your community.

By the way, all of the organizations I donate to are on Charity Navigator. Let me remind you again — use it!

Give Directly

In some cases, charities hire fundraisers to help them get the money they need. Unfortunately, the charity might not get the full amount of what you give through a fundraiser. That’s because third-party fundraisers can take 50% (or more) of the proceeds. This can significantly reduce the effectiveness of your charitable donation. If you want to make sure that more of your money is going to the worthy cause you support, give directly.

The only exception I made to this rule is that I’ve donated a few times to causes after I learned about them through the radio. I was just really touched by the stories. So I figured that 50% (or even 25%) of my money is still being used for some good.

Watch Out for Scams

You also need to be on your guard for scams. There are a staggering number of scammers out there who pose as charities. Or they set up different organizations that sound similar to the legitimate charity. Some scammers even spoof their caller ID in order to trick you into thinking you are donating to a legitimate organization. One of the best things you can do is to just go directly to the source to donate. Be sure to avoid giving money when people call you unsolicited.

Most charities have official web sites (make sure you are visiting the official site) and you can donate directly. That’s why looking up an organization on Charity Navigator is so great. You get some time to look up the charity. Then you can ensure your donation is being maximized by donating directly, without a middle-man taking a cut.

Watch out for scammers that claim to be collecting for disaster relief efforts (or the pandemic). In many cases, making a donation to the Red Cross or some other established charity for the purpose of disaster relief is more effective. At least you know that your funds will actually be used in the right place.

There are many worthy causes that deserve our help. However, there are many more out there that’s just not worth our hard-earned dollars. Before you decide to invest your money into these causes, you should take a small bit of time to research the organization behind the cause. You want your money to help those in need, not fund some CEO’s mansion. For more tips on ensuring your generous donations aren’t wasted, check out this article.

Shutterstock

David Ning

David Ning

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs MoneyNing.com, where he discusses every day money issues to encourage the masses to think about their finances more often. Today, he is living his dream of helping others achieve financial freedom by providing financial education to anyone who wants to seek advice. You can get in contact with him on his website, or on social media through his Twitter or Facebook page.

X