There are many reasons why people might choose to donate money to a charity. Some people may feel passionate about a particular cause and want to do what they can to help, while others may want to enjoy the tax benefits that are linked to donations. Whatever the reason, there are many benefits to donating to charity, both for the donor and for the charity itself.
While there are many reputable charities that use donations properly, it’s important to take some time to do your research on which charity is best for you.
Here are a few tips on the best way to donate to non-profit organizations.
Ways to Vet a Charity
Donating to charity is a wonderful way to help those in need, but it’s important to do your research first to make sure your money is going to a good cause. Here are a few tips for vetting charities before you donate:
1. Verify the charity’s name
Start with research to make sure the charity you’re considering is legitimate. Fake charities can have names that closely resemble that of established charities.
For instance, thousands of charities have “Veteran,” “American Cancer,” or “Habitat for Humanity” in their names.
You can verify the charity’s identity on these sites:
2. Confirm if the organization is registered
Charities need to register with the relevant state government and the IRS annually. Not registering with the IRS means that the organization is not transparent about how they are using the donation. It can also mean your donation will not be eligible for a tax deduction.
A registered non-profit will have an EIN (Employer Identification Number) or tax identification number. Check the organization’s website to know its EIN and key in the EIN on the IRS Tax-Exempt Organization Search tool to see if it is registered.
3. Check the history
To know if an organization is worth donating to, you should research its history and funding sources. Research who supports the organization and how long it has been operating. News stories, social media comments, and reviews are other ways to check the organization’s legitimacy.
4. Speak to the charity
Ask the charity for a breakdown of how your donation will be used. Will it be used to help people directly or will it go towards administrative costs?
You can also go to CharityWatch or Charity Navigator to check the charity’s rating. These sites rate nonprofits based on their financial transparency and how efficiently they use their donations. A-rated charities devote 75% of your donations to the cause you want to support.
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Tips for Giving Money to a Charity
If you’re feeling philanthropic, there are important things to consider. Here are some additional tips to follow when planning on donating to a charity.
1. Pick a charity or cause that is important to you.
The vetting process you undertook may have helped you shortlist a few legitimate, A-rated charities. Among these, you will need to find a charity that is involved in supporting the cause that matters to you, whether it relates to cancer research or animal rescue. You will also need to decide if you want to donate to international, regional, or national charities.
2. Watch out for hidden fees.
Just like other companies, nonprofits also have administrative expenses. Look out for hidden transaction or processing fees that online crowdfunding websites and credit card payments involve. Also be sure your donation goes more toward the cause and not the administration.
3. Avoid middlemen.
The risk of handing over your money to solicitors or middlemen is that they may use your money for their own benefit. Instead, donate to your chosen nonprofit directly.
4. Itemize your donation.
Itemizing your donations will help you claim tax deductions. Fill and file Schedule A along with Form 1040 to itemize the deductions.
5. Document your donation.
Regardless of the amount you donate, maintain a record of tax-deductible donations. The records can be in the form of a credit card or bank statement and a receipt from the nonprofit. Make sure the receipt reflects the amount you donated, the date, and the name of the charitable organization.
If you later decide to leave money to a charity in your will or through a life insurance policy, a history of charitable donations will help confirm your intentions to probate court and the insurance companies.
What are signs that the charity could be fraudulent?
Here are a few signs of fraud that you should look out for:
1. Not providing relevant details
If a charity organization is refusing to provide you with information about how your donation will be used or what its operating costs are, it can be a red flag. They should be willing to provide answers to all your queries including where are they headquartered, their EIN, mission, and history.
2. Not providing information on your donations
Sometimes, a scammer might trick you by thanking you for your previous donations, hoping that you just assume you’ve forgotten. In such cases, you should ask for details like the date of payment, amount, and how the payment was made. If they are not able to provide you with this information, they might not be the organization you donated to in the past.
3. Being pushy
A scamming organization might ask you to donate immediately. A reputable organization, on the other hand, will give you enough time to do the same.
4. Not present on accountability websites
There are some organizations that work on holding charities accountable and protecting donors. Steer clear of an organization if it isn’t listed on one of the following websites:
How is donating to a charity a tax benefit for you?
When you donate to a charity, you are able to deduct the donation from your taxable income. This means that you get a tax break for donating to a good cause.
There are a few things to keep in mind when deducting donations from your taxes:
- If you make cash or check donations to qualified charities, you can deduct the donations. The IRS website lists the qualified charities.
- You can deduct donations that are more than $200 per year.
- You can file Form 8283 if you make noncash charitable contributions such as a property. In this case, you can deduct the property’s fair market value.
When you donate to a charity, you want to know it’s going to a good cause. These tips will help you ensure that your money is being used appropriately.
Did you know you can use life insurance to help your favorite charity? You can buy a life insurance policy on yourself and transfer ownership to the charity, and then receive an income tax charitable deduction. Or you can name the charity a beneficiary of a policy you own, and then the proceeds can be deducted from your taxable estate.
Learn more here: Using Life Insurance to Help Your Favorite Charity
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