Each holiday season, charities besiege the public with appeals for help. If you’re caring for a senior who is receptive to these pleas, consider helping them select charities in advance to avoid responding to unsolicited appeals. In fact, the holidays are a great time to get together and review plans for giving.
Choosing Your Charities
“Charities may take advantage of you on these emotional causes, so take a step back and look rationally at whether an appeal is legitimate,” says Daniel Borochoff, president and founder of CharityWatch, who has evaluated the efficiency and accountability of nonprofit organizations for 30 years. “Use your head to pick the groups that are able to accomplish a lot with your donation.”
In fact, there are plenty of organizations to choose from. According to the National Center for Charitable Statistics, there are more than 1.5 million tax-exempt organizations in the United States. These nonprofits range from small neighborhood associations to large university foundations.
Borochoff’s nonprofit watchdog organization is an excellent place to start narrowing the list. CharityWatch evaluates charities and identifies the best and worst ones based on how wisely and effectively they spend their money. They also group their findings by cause, such as animals & animal protection, cancer, human rights, and veterans & military.
Another service that evaluates charities is the Better Business Bureau (BBB). The BBB’s Wise Giving Alliance lets users search for charities they have accredited based on a 20-point assessment that focuses on areas such as governance and oversight, program expenses and complaints.
Another service called Charity Navigator publishes a helpful list of tips for seniors to prevent them from falling victim to charitable fraud. Sadly, older individuals are often targeted by deceitful individuals and organizations. Charity Navigator also publishes tips on how to best handle phone and mail solicitations. Consider printing these tip sheets for elderly relatives and friends to help them choose whether or not to donate and how to do so safely.
Do Your Own Research
You don’t have to be an accounting wizard to analyze a charity yourself. That is because well-run nonprofit organizations are proud to share their audited financial statements and tax returns with the public. The better ones make these documents easily accessible on their web sites and answer consumer questions in a timely manner.
Charities must file IRS Form 990, a public document that is full of useful information ranging from how much money a charity has raised to how much it spends on fundraising efforts and executive compensation.
If you prefer to do your research anonymously, consider signing up for a free membership to Guidestar. This service gathers and disseminates information about every IRS-registered charity and features a search function that lets you find specific organizations and review their last three years of tax returns. Be aware that Guidestar does not evaluate charities; rather, this nonprofit collects, organizes and presents information about them in an easy-to-understand format.
You can also use a charity’s tax return to evaluate how well it manages its money. Borochoff’s organization uses the following general guidelines for rating these organizations. Ideally, they must spend 75 percent or more of their budgets on programs, spend $25 or less on fundraising for every $100 received in public support and not hold excessive assets in reserve (generally for three years or less). “You want to give to groups that need your money,” Borochoff says.
However, it is important to not be too rigid with guidelines. For example, a charity’s CEO compensation may appear excessive at first glance, but it might actually be an appropriate amount given their duties and what they could earn in the private sector.
Consider Donor-Advised Funds
A donor-advised fund may simplify your giving even further. You or a loved one can establish such a fund with a mutual fund company, such as Vanguard Group or Fidelity.
A donor-advised fund lets you take an immediate tax deduction when you contribute cash, stocks or other assets. You select how you want the funds invested and advise the fund how to distribute the money to your favorite charities. These funds grow tax-free.
Companies such as Vanguard also have teams that review charities to make sure they’re eligible to receive these contributions. In addition, they provide helpful guidance to donors through their resource center.
Community foundations also offer donor-advised funds, but compare fees and expenses before committing. Fees can quickly add up and eat into investment returns, negating the good you intended.
For example, low-cost provider Vanguard Charitable charges a 0.6 percent annual administrative fee for the first $500,000 in addition to the investment-management fees for the funds that average 0.11 percent. Vanguard requires a minimum of $25,000 to open a donor-advised account and $500 minimum grants to charities you recommend.
What’s Tax Deductible
If you or your loved one is in a financial position to give money or assets to charity, it’s a good idea to familiarize yourself with the Internal Revenue Service’s rules for deducting charitable contributions on your federal tax return.
These donations are only deductible if you itemize deductions on Form 1040 and make contributions to qualified organizations. The IRS offers a tool called Exempt Organizations Select Check that lets you verify whether a nonprofit organization has tax-exempt status.
You can see how much of a tax benefit you can get by using Charity Navigator’s Giving Calculator. For example, if you’re in the 25% federal income tax bracket and you make a $1,000 gift to a qualified charity, your tax savings will be $250.
If you give cash, a check or another monetary gift regardless of amount, you must maintain a record of the contribution. This can include a bank record, a receipt or some other written communication containing the name of the organization and the amount and date of the contribution. In addition, you can generally deduct the fair market value of any property you donate to qualified organizations.
For any contribution of cash or property of $250 or more, you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property donated. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services.
It certainly is the season of giving, but make sure you and your loved one are doing so wisely. The charities you select should put your hard-earned money to work for the causes you care about and little else.