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Evaluating Charitable Organizations for Donating

The holiday season creates an overwhelmingly positive sense of gratitude and an appreciation for all that we have. It’s natural to want to use a portion of what you have to positively impact the lives of others. Many people choose to donate during this time of the year. In fact, 31% of annual giving occurs in December. 

However, many people who are interested in charitable giving feel a little bit stuck. There have been stories of charitable organizations who keep the majority of their donations to pay high-level executives, or who don’t use the funds to impact the cause they supposedly support. This begs the question:

How do you know if the charity you’re donating to is legitimate?

Let’s walk through a charitable giving primer to help you ensure that your wealth is going toward the causes you’re passionate about this giving season.

Know Your “Why”

First and foremost, before donating to charity, you need to be clear on your motives. Ask yourself the following questions:

  1. What causes am I passionate about?
  2. How would I like my donations to be used to make an impact?
  3. Do I want my donations to be tax-deductible? 

The key to finding your ideal-fit charitable organization is to ensure that they support causes that are close to your heart, use your donations wisely, and are a 501(c)(3) organization recognized by the IRS if having your donations be tax-advantaged is important to you. 

Research Organizations

Your next step is to research organizations that meet your first and third criteria. Start by focusing on finding groups that address causes you’re passionate about and have a 501(c)(3) designation. In general, this is a good baseline to follow regardless of the type of charity you’re looking to support. 

Know what cause you want to support, but aren’t sure what organizations are out there?

Start building your list of potential donation candidates using a free guide like Charity Navigator. You can easily search for keywords that relate to causes you care about to find related charities. For example, when searching for “clean water”, over 100 results are pulled up and can be filtered by state, location, organization size, and category. Take your time to explore each charity’s website, and other organizations they may be involved with. 

Vet Your Final List 

Once you have a shortlist of charities you’re interested in supporting, it’s time to dig deeper to decide where to donate. This is where understanding whether or not your chosen organizations are reputable is key. Using a resource like the BBB Wise Giving Alliance, you can enter names of charities and pull their online reports. You’ll be able to see information on your organizations of choice including:

  1. Whether or not they’re a BBB Accredited Charity.
  2. Category of charity.
  3. Governance.
  4. Measuring effectiveness.
  5. Finances.
  6. Fundraising and information. 
  7. Purpose and programs.
  8. Tax status.

This tool also allows you to view whether there are complaints out against the organization and whether the organization responds in a timely manner to those complaints once they are filed. This can help give you a better sense of whether the organization prioritizes transparency, and is operating in an authentic way. 

The report also details the organization’s financial information including program expenses, fundraising expenses, audit reports, and budget plans. If you’re concerned that your donation won’t be put toward the actual cause you’re wanting to support, this information can help you discern whether or not this organization is right for you.

Decide How and When to Donate

Choosing a charity you’re passionate about can be a challenge. However, doing your due diligence can help to ensure that your wealth is going toward causes you’re passionate about, and further adding to your impact and legacy. Once you’ve determined what organization (or organizations) you want to donate to, you can decide how and when it’s best to donate. 

For many who have a straightforward tax situation and take the standard tax exemption, a simple cash donation may suffice. However, if you are interested in setting up a Donor-Advised Fund to gain tax benefits from charitable donations, this may be a more in-depth conversation to have with your financial advisor.