This time of year, I think of charitable giving. This is challenging at a time when more people are in need of assistance but fewer are in a financial position to be able to provide it. I encourage you to think of others if you are in a position to give. However, I want you to give wisely, thus here’s some guidelines to assist you.
First Why Donate? The Benefits of Giving to a Charity
Donating money can make you feel better. It is empowering to share with others. The act of giving money, seems to activate the “attraction of money” principle. The more I give, the more I, subconsciously, work to replace it, so I can give more. It clearly supports the feeling of abundance, rather than scarcity. It changes the focus from what you don’t have to what you can give. If you decide to donate, learn more about the nonprofit.
Are They Truly a Charitable Organization?
First verify that they are approved by the IRS as a designated charity that can receive tax deductible donations. Go to irs.gov/charities-non-profits/tax-exempt-organization-search to see if your charity has this designation. Religious organization and churches are automatically considered tax-exempt.
Do They Fund Worthwhile Programs?
Let’s look at their annual tax return. Every IRS approved nonprofit is required by law to file an annual tax return, Form 990, and that return is available to the public. Here are two websites that will provide information for free – www.guidestar.org or www.charitynavigator.org. Here’s what I would look for:
- On 990 page 2 the charity’s supports accomplishments in the different program they operate and how much they spent on that program.
- Form 990 page 7 & 8 will tell you the salaries paid to key executives and board members.
- Form 990 page 10. Look to the bottom of the page for the total spent in 3 areas – program, management and fund raising. The more to program expenses the better.
- Another option is to volunteer and learn more about the organization first hand.
Will the Donation Provide You a Tax Benefit?
Charitable donations are tax deductible; however, they may not provide a tax benefit. In 2020 you can deduct up to $300 of cash donations without having to itemize. The other option is to itemize your deductions. To provide a benefit your itemized deduction consisting of state taxes, mortgage interest and donations need to exceed your standard deduction. State taxes are limited to $10,000. The standard deduction for $24,800 married filing joint and $12,400 for single. There are some tax planning options such as pay two years every other year or if you have a major windfall consider funding a donor advised fund.
Beware of Fraud
Charity scams are sadly common; after high-profile disasters, there are often reports of fraudulent charities seeking to take advantage of those who want to help. By checking the IRS site to confirm their existence, then looking at the annual tax return to determine how much actually goes toward the programs you can improve the quality of help that you are donating for.