Do Your Donor Due Diligence
by Eric Nager on Jan 14, 2020
If you’re like most Americans, you make the majority of your donations to charitable organizations in November and December. But as you get ready to pull out your checkbook to write that check or go online to make a donation from your favorite organization’s website, make sure to perform some due diligence; particularly if you’re considering giving to an organization for the first time.
So, what should you know about the organization you are interested in giving to? Here are a few things to look for:
- 501(c)(3) status. If the organization you are interested in giving to currently has or has applied for this designation, you are eligible to take a deduction for that contribution. There are other types of organizations that accept contributions and allow you to take a deduction, but they vary, and sometimes the deduction allowed is as a business deduction, not a charitable contribution. The bottom line is if the organization you’re giving to does not have 501(c)(3) status, you may want to research the organization further. In any case, you should check with the IRS prior to taking any tax deduction.
- Always get a receipt; particularly if your donation is more than $250.00, as that is the IRS cutoff for providing proof of a donation. While you can provide a cancelled check as proof, it may be more difficult to provide that proof when giving online. The organization should always provide a receipt for any donation $250.00 or above.
- Make sure it is a legitimate organization. This is particularly important when giving to an organization for the first time. Quite frankly, thee are a ton of organizations out there, all trying to obtain your hard-earned dollars. Take a few moments to be sure that the ones you give to are actually providing the work or services they claim prior to gifting them with a donation.
- Is the organization transparent? Do you know how they use the donations that they receive? Is there an adequate amount of money going directly towards programs? However, on the flip side, remember that many organizations wouldn’t exist without staff members providing their expertise, running their programs, and maintaining their finances. Overhead is a necessary requirement for any organization. Just make sure that that’s not the only thing the money is being used for. For more detailed information on any nonprofit that you’re currently supporting or considering supporting, be sure to visit GuideStar, Give, and Charity.org, which provide financial details on charitable organizations including 990s.
- If you plan on taking a tax deduction for your gift, be sure that it’s in the hands of the organization by December 31st, or you’ll have to wait until next year to take that deduction.
- Remember that you also have the option to give in other ways, such as stocks and bonds, or even a charitable bequest to the organization. Be sure to check with the organization in question prior to make sure that they are equipped to handle your donation properly.
By spending a little bit of time doing some research, you can help to ensure that your donation is used in the spirit in which its given.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2023 Advisor Websites.