We receive a lot of inquiries about charitable giving. One common question relates to taxes and what does (or doesn't) qualify for deductions. This is especially confusing with the emergence of popular personal fundraising platforms like Go Fund Me. It's important to remember that only financial gifts received by a tax-exempt organization, as defined by section 501(c)(3) of the IRS, qualify for tax deductions.
Not understanding tax implications is just one of many pitfalls to be aware of when it comes to charitable giving. Here are a few more to be mindful of.
Spreading Limited Dollars Over Too Many Causes
There are plenty of worthy charities to support, and with limited resources it can be difficult to narrow the list down. Develop a strategy to concentrate on causes you are most passionate about - education, culture, arts, health, your church, international relief or human services, to name a few. The choices are almost limitless. Your resources are not.
Not Getting the Best Return
For many, having your funds spent and invested wisely is extremely important. When selecting an organization, ask how much of your donation will be applied toward general administration and fundraising expenses, and how much is left for the program or services you want to support. Most highly efficient charities spend 75% or more on programs. Keep in mind, however, that newer groups and those focused on less popular issues often spend a greater percentage on administrative costs than well-established groups.
There are several charity watchdogs you can find online. Do your homework. You may find your decision reinforced by what you find. Or you may decide to steer clear of a particular organization based on your research.
Giving to the Middleman
Give directly to the charity of your choice and avoid solicitors. The middleman gets paid to raise funds. That’s a haircut on your donation you will want to avoid.
Falling Prey to Emotional Appeals
This is tricky and difficult because we all want to help and share our blessings with those less fortunate. Emotional appeals pull at our heartstrings and are often hard to say no to.
We just caution you to be careful, especially with what are called 'flavor of the month' charities. For instance, when a disaster occurs, there are reputable outfits we are all familiar with. Donate to them and you can feel confident your money will go to help those suffering. But sadly, there are also fraudulent companies that can also play on our desire to help. Donate to them and risk your funds not going to help those in need and instead, line the pockets of scammers.
Waiting Until The Last Minute
Many nonprofits get a big chunk of cash at year-end. If possible, you can set up monthly payments that help even out the cash flow of these organizations, making it easier on their budgets—and your finances.
If you have specific questions about your own charitable giving plan, please reach out to our office or contact your tax preparer for clarification.