Helping neighbors in need is one of the greatest of feelings. Charities that are on the ground, working to make the world a better place, can benefit greatly from our donations. One contribution can make all the difference to those in need. And, when managed strategically, our charity dollars can be tax-efficient, as well. The benefits of charitable giving are endless, but we must pay close attention to which organizations we fund. With a little research, you can rest assured that you’re changing the world for good.
Check with Trusted Resources
Luckily, a few quick searches can help you attain much of the information you need. Several trusted resources can give you confidence—or provide you with insight into why your charity dollars could do more good elsewhere.
Here are some of the top charity vetting resources:
Review the Charity’s Financials
When asked how he finds reputable charities, Dave Ramsey had this to say: “Depending on the size of the charity, they will have detailed financial statements that will reveal [how they spend]. If they don’t make their financials public, I don’t give to them.” Of course, once you locate those financial statements, keep in mind that you’re looking for the ratio of administrative costs to the money that goes directly to your desired cause. If 90% of the funds are going to overhead and only 10% of the funds are making it to your cause, this charity may not be the most efficient way to use your money. Administrative costs are necessary; however, the numbers should reflect that the charity uses your money wisely. Some suggest that administrative costs should hover around 35%.
Keep in mind that there is a cost associated with retaining top talent. If a charity wants to be successful in fundraising and operating, they will need to compensate their employees competitively. Overall, use your best judgment when reviewing these numbers and consider what kind of picture they are painting—and if it’s a picture that you feel good about.
Look Over the Charity’s Website
A charity’s website should tell you most of what you need to know. They’re telling you a story about why you should give to them before anyone else. Take a moment to see if that story aligns with your morals and goals for giving. Look for how much good the organization is doing: do they help a large number of people, are they transparent about how they operate, are they sending a message that resonates with you? Keep these elements in mind as you determine whether this charity is the best fit for your hard-earned money.
Determine Whether Your Donation is Tax-Deductible
If you hope to mitigate your tax payment through charitable donations, ensure that the charity you are considering is a 501(c)3. This designation lets you know that they have been certified as tax-exempt by the IRS, and they will be able to provide you with documentation stating this as well. You can also do your own due diligence by checking the IRS’s Tax Exempt Organization Search.
Trust Your Gut Feeling
Your money should be put to work in the best way possible. Make sure that you have properly vetted the charity, ask around to your friends and family, and—more than anything—trust your gut. Give this act of kindness the thought and research necessary to feel comfortable with your donation.
Your advisor can help you create a tax-efficient charitable giving plan that benefits everyone involved. Contact us today to get started!
