Know Where your Donations are Going

August 17, 2012 | Posted By: Adria Saracino | Categorized in: Finance, Tax Advice & Tips
If youíre big on charitable giving, the likelihood is that you have a tendency to wonder where exactly it is that youíre hard earned money is being spent. Itís nice to know that the money youíve donated is being allocated properly and that by giving you are making a difference.

If, like me, you do spend time before you donate researching the eventual destination of your money (in todayís economically driven world itís only natural to want to see a good return on your investment), then here are some tips on making sure your donation goes to those that need it most.

What to Look For: Where Your Money Goes

Ask yourself whatís important to you: education, outreach, awareness, treatment, or something else entirely? Be sure to familiarize yourself with your charityís mission statement and make sure its values are in line with yours.

Charities are required to file an annual reporting return with the IRS each year. It provides information on the organizationís mission, programs and finances. You can get access to these on charity watchdog group websites (such as GuideStar, the American Institute of Philanthropy, and the Better Business Bureau), but theyíre difficult to read.

To make it simple, these organizations developed a rating system. To get a good rating from these watchdog groups, a charity should not spend more than 35% of what it makes on salaries, administration and the cost of raising money.

Remember, fundraising costs money, look at a charity like you would invest in a business. Find out where the money goes and how effective the organization is with the money it raises. Make sure it is accomplishing the goals it set out to.

By making sure your chosen charity devotes a large percentage of its budget to the programs and services it claims to provide (and be sure to familiarize yourself with these, request literature and a copy of the charityís annual report), you can be satisfied that theyíre having an impact in their area of interest.

The Global Poverty Project has an interesting blog on charitable giving and where your money goes, so for more information check it out.

Red Flags

A Lack of Transparency
Charities have an obligation to provide interested donors with detailed information. A reputable organization will define its mission and programs clearly, have measurable goals and use concrete criteria to describe its achievements. If you canít find this information on its website or that of a watchdog, itís time to start worrying.

Reputable nonprofits donít use pressure tactics; it should be willing to send you information about its work or direct you to its website. Question phone solicitors or direct mail appeals which tell you nothing of the charity or offer vague explanations for spending your charitable dollars. Legitimate organizations will always take Ďnoí for an answer. Trust your instincts on this one, if you have doubts about a charity, donít contribute to it.

Beware of gifts. Direct mail solicitations are often accompanied by greeting cards, address stickers, calendars, key rings or other gifts. These enclosed items can mean unnecessarily higher fundraising costs for the organization.

Tax Rebates
Donations to charity are tax-deductible expenses. These donations can reduce your taxable income and lower your tax bill.

To benefit, you will need to keep a record of all your contributions. For contributions under $250, records may be in the form of a bank record, cancelled check, or written communication from the charity. For all tax-deductible contributions of $250 or more, the IRS requires that you obtain a receipt from the charity (a cancelled check will not suffice).

Not all charities are eligible to receive tax-deductible contributions, so before you start researching those fundraising ideas, make sure you know that your charity of choice will help you earn money come tax season. Engaging in lobbying or political activity precludes a charity from receiving tax-deductible donations. Tax-exempt means the organization does not have to pay taxes. Tax-deductible means the donor can deduct contributions to the charity on their tax return.

Overall the best thing to do is make sure that you give to the organizations that work on the issues that you care about, that have the same values as you (in terms of how, where and why they work), and that they are accredited.

Additional Resources

Tips for Charitable Giving on a Budget
Save Money by Adopting a Shelter Dog
Giving Back the Right Way During the Holidays

Adria Saracino is a marketer and do-gooder. When not consulting on business strategy you can find her voluntouring or promoting charitable causes.
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