As the year closes out with holidays, in the spirit of giving freely to others, some people may decide to give money to a charity they’ve supported previously or a new organization to receive their funding.
While giving to others can be considered a noble, generous and selfless act, it is worth keeping in mind that donating to an organization that is considered by the government to be a non-profit is also often tax deductible—but donations must be made before year-end, December 31, to be used for the current year’s taxes. An interest in helping others while lowering our taxes could result in a financial gift for a non-profit and a financial benefit for the giver.
For your money to have the greatest impact, it’s important to know that the non-profit you’re considering has a documented history of managing its finances effectively and accomplishing its mission. It’s a good idea to invest in a little research before investing in a charitable organization, especially if you don’t actually know that much about what the non-profit does or how and where it operates.
Here are five key questions to ask about a charity before donating your hard-earned money to support its efforts:
- Is the organization(s) a non-profit according to U.S. government tax regulations? To be considered a non-profit by the federal government, it must officially fall within the Internal Revenue Service’s regulations, section 501(c); most charitable organizations have the specific tax-exempt legal status of 501(c)(3). The charity should be able to give you confirmation of both of its 501(c)(3) status and also a record of your donation for your personal tax deduction purposes.
- Is the non-profit fiscally responsible and efficient with its donations? Some organizations may have such high operating costs that that a significant portion of donations they receive do not go directly to the people the charity is trying to help. Instead, a large chunk of the money raised is used to keep the charity operating; consequently, a donation may help the charity more than the cause it intended to support. A well-run non-profit organization is efficient and responsibly ensures that a high percentage of the funds it receives go directly to the charitable cause it’s focused on supporting.
- Can the charity provide provable, audited facts about how it is progressing in achieving its objectives? Many charitable organizations provide annual reports quantifying their activities and achievements for the past year, and this report should be reviewed before committing your personal funding. Some of these reports may be audited by third-party professionals—such as lawyers or accountants—to verify their accuracy and validity. Here are some examples of activities performed or completed that may be documented in non-profit reports: the number of meals served, families sheltered, clothes given out, medicine distributed, homes built or repaired, surgeries performed, scholarships awarded, textbooks given away, research grants funded, animals saved, trees planted, farm animals donated, nature lands preserved, etc. Solid reporting should also note other forms of measurable evidence of ongoing efforts and success over a specified time period.
- Can you give an unrestricted or restricted donation? An unrestricted donation means that the charity may use your money as it prefers. A restricted contribution is directed by you only to specific programs or activities within the organization the funds should be used to support such as low-cost housing, medical care, meals, clothing or a shelter for homeless or abused individuals. Be aware that not every charity will let donors make a restricted donation.
- Can you give a donation in someone else’s name? As part of your holiday gift-giving, you may be able to donate on behalf of family members, friends, or in memory of someone. If you donate for another person, it could be considered a double gift—one for the charity and one for the person named in the donation. Although it’s in another person’s name, the donation is coming from you, so it should still provide a tax deduction.
As the year ends with holiday celebrations, sharing experiences with family and friends, and giving and receiving gifts from people we care about, some may choose to donate to charitable organizations. If you’re going to give and want the money to accomplish as much as possible, then also spend some of your time to learn more about the non-profit, its goals, and its success towards achieving them.
Other ideas for managing your money during the holidays
More information on managing finances is available from free, monthly Delta Community Financial Education Center webinars on many different money-related topics. Please visit the Financial Education Center's Events & Seminars page to register for its no-cost, on-demand webinars.
Delta Community’s blog and security posts have a lot of advice on holidays and cybersecurity:
Charitable donations are just one of the ways to BALANCE™ your money
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Visit the BALANCE™ website to learn about their education and assistance programs. Members can also speak with certified credit and housing counselors to get personalized guidance.
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