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How to know if your charitable contributions are going to the right place

How to know if your charitable contributions are going to the right place - TaxAct Blog

An estimated $373 billion was donated to charitable causes in the United States during 2015, according to the charity watchdog site, CharityNavigator.org.

That’s a lot of money going to great causes…or so it would seem.

The fact is, donating to charitable organizations is great for a number of reasons, but sometimes your contributions aren’t used exactly how you’d hoped.

It’s a good idea to do your research before choosing where you direct your money.

To help, here’s some quick information to give you a better sense of where your donated dollars are going and how they’ll be used.

What could be happening to your charitable donations

When you donate to a charity you aren’t thinking, “well this could be going to the chief executive officer’s (CEO’s) paycheck” — but it very well could be.

Not all the money raised actually goes toward the services outlined by the charity of your choice.

Here are a few ways your money could be spent.

Events and fundraisers

The old adage, “you have to spend money to make money” is incredibly true for charities. It takes fundraisers, advertisements and, of course, staff to keep the charity going.

How much a charity spends to raise money gives you a better sense of the value there is on a dollar.

If it takes 25 cents to raise $1, then you’re really only donating 75 cents for each dollar you contribute.

Fundraising costs can significantly eat away at what a charity has to put toward its services and programs.

Executive compensation

A charity must disclose the name of its CEO as well as his or her compensation. You can find this on the 990 tax form.

A charity’s failure to disclose this information should be a big red flag as should a bloated salary for an under-performing charity.

Administrative expenses

Charities need to pay people too. Not everyone can just volunteer time, especially when you’re considering a multi-million dollar operation.

However, you don’t want to see too much of the charity’s budget being eaten up by overhead costs and administrative expenses.

Actual programs and services

CharityNavigator helps you see how much of a charity’s total expenses go to the programs it offers.

For example, the American Cancer Society spent 59.9 percent of its total expenses on services. The Michael J. Fox foundation, on the other hand, spent 89.5 percent of the charity’s total expenses on the services it promises donors it will deliver.

Best steps to vet a charity

When researching which charity should receive your donation, take the time to properly vet the organization using the steps below.

Check the status

You want to see 501(c)(3) status from your charity. This means the organization has been granted tax-exempt status by the IRS and you can make tax-deductible donations.

Keep in mind that religious organizations can also use this status, not strictly charitable operations.

Do your research

Before clicking donate or writing that check, take a couple of minutes to do your due diligence.

An easy practice is to type the name of the charity + scam into Google to see if anything pops up.

You can also use CharityNavigator, GuideStar and GiveWell to quickly determine if a charity is legitimate and following through on its stated mission.

Don’t trust the ads or endorsements

Charities endorsed or founded by celebrities don’t necessarily lend credibility. And a well-done commercial doesn’t mean your dollars will be put to work the way you think.

CharityNavigator ranks celebrity-related charities (keep in mind four is the highest possible score) for a quick rundown of the top-notch options.

Beware of sound-alike names

Scammers come out in droves during the holiday season trying to pass themselves off as charitable organizations.

It’s easy enough for a scammer to come up with a similar logo and name as a charity you’re already familiar with.

If you aren’t careful, you could mistake the copycat for the real charity. Make-A-Wish Foundation is a familiar name, but would you possibly confuse that with Get-A-Wish Foundation?

Remember to keep track of your contributions

No matter what 501(c)(3) tax exempt charity to which you donate, always keep track of your contributions so you can claim them as deductions when filing your taxes!

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.
About Erin Lowry

Erin is the founder of BrokeMillennial.com, where she uses sarcasm and humor to explain basic financial concepts to her fellow millennials. Erin lives and works in New York City. She's developed quite the knack for finding deals and free events. Connect with Erin on Twitter, Facebook and Google+.

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