Americans are generous people. According to the Lily Family School of Philanthropy, Americans give almost $485 billion dollars a year to charity. The reasons vary from paying it forward to giving something back or knowledge of the immutable universal law that if you give you will receive (although if that’s why you’re giving it probably won’t work).

But, will your donation have the impact you want it to have? It’s worth doing a little research to make sure.

 

What makes a good charity

The sign of a good charity is one that spends most of its money on the intended beneficiaries of the charity.

  • Charity Navigator, which ranks nonprofit organizations, says a charity should spend at least 70% of donations on program activities and no more than 30% on running the organization.
  • Charities Review Council says at least 65% should be spent on programs.
  • To be listed on the Better Business Bureau’s Wise Giving Alliance, an organization has to spend at least 65% of its donations on programs. The Wise Giving Alliance ranks nonprofits on 20 different criteria from how the organization is governed to how much they spend on fundraising to how transparent they are.
  • Charity Watch considers a charity to be highly efficient when program spending is 75% or higher.

 

Charity Watch has other information you’ll find useful, such as:

  • The organization’s mission statement, tax filing status, and total expenses versus total contributions
  • How much it costs the charity to raise $100, which can be a sign of the organization’s efficiency or lack of it
  • A letter grade, like A, B, or C
  • Where a charity ranks on a scale of 1 to 4
  • An organization’s efficiency or expense ratio. Higher efficiency ratios illustrate a charity’s productivity in providing services in line with its mission.

 

The Federal Trade Commission suggests that your research include visiting the charity’s website to see if it gives details about how the charity uses donations, how much will go to support the programs you care about, and other transparent information. If you can’t find detailed information about their mission and programs, be suspicious.

 

How to know if a charity is real

Legitimate charities have to be registered with the IRS. So, begin by checking the IRS database of all 501(c)3 nonprofit organizations. To accept tax-deductible donations, a charity must be given 501(c)3 status by the IRS, which means they have to file a tax return. Many of those returns can be found on the Tax Exempt Organization search page.

 

According to Charity Navigator, here are the most important things to check on the nonprofit tax returns:

  • Executive pay: Page 7 will list pay for the CEO and anyone else in the organization making more than $100,000 a year
  • Program spending: Page 10, line 25 will list “total functional expenses” and “total expense”
  • Professional fundraisers: If the organization pays professional fundraisers to solicit donations, those expenses will be listed in Part 1, line 16a. If the nonprofit filed a Schedule G, that will give a more detailed breakdown of fundraising expenses
  • Revenue sources: The “Statement of Revenue” on page 9 will show where a nonprofit gets its money from, whether it’s grants, memberships, or donations. A healthy nonprofit will have a good mix of revenue from different sources

 

The IRS requires an additional form besides the tax return. Nonprofits that raise less than $25,000 a year file an IRS 990-N postcard, which has limited information about how money is spent. Charities raising more than $25,000 per year file the longer Form 990, which contains information about how money is spent, the board of directors, and top-paid staff.

 

Tax-deductible donations

While a charity may be a 501(c)3 tax-exempt organization, it doesn’t mean you’ll be able to deduct your contribution. Charitable donations can only be deducted if you itemize your taxes. That means your deductible expenses, including charitable donations, have to be more than the standard deduction allowed by the IRS. And according to The Tax Foundation, more than 85% of U.S. taxpayers take the standard deduction.

For 2023, the standard deduction is $13,850 for an individual, $27,700 for married couples, and $20,800 for heads of household. To claim charitable gifts, your deductible expenses — including your charitable donations — will have to exceed those amounts.

 

What about crowdfunding sites?

Crowdfunding sites like Kickstarter and GoFundMe are different from giving to a charity. Generally, donations to such sites are not tax-deductible.

Kickstarter is widely regarded as a reliable platform where entrepreneurs appeal for money from the public to help get a new business idea off the ground. GoFundMe is geared more toward individuals raising money online for various purposes.

The companies and people raising money on crowdfunding sites are much harder to verify so be sure you know who you’re giving to before you press the “donate” button.

 

 

Disclaimer

This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice, or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].