How to Pick the Right Charity for Your Money

Dec 29, 2017

A couple serving others at a soup kitchenInterested in making one or more charitable contributions before the year wraps up but want to ensure that your investment is likely to make a positive impact on the causes or services that matter most to you? With more than one million IRS-registered charities in the U.S., sifting through the seemingly complex network of nonprofits to identify the charities that will put your money to its best use can seem like a daunting task. Fortunately, you can simplify the process with a few of these strategies and by staying alert to common ploys used by unscrupulous types that would take advantage of your goodwill:

Access charity rating services and other online tools: If you need some help in finding a well-managed charitable nonprofit that reflects your values and interests, Charity Navigator is an excellent place to start. This online service enables you to customize your search for nonprofits based on eleven categories – from health and human rights to animals and the environment. It also provides a searchable database based on hot topics and top ten lists. The service evaluates thousands of nonprofits with a four-star system measuring financial health, accountability and transparency. With a user-friendly interface, Charity Navigator also allows you to maintain records of your contributions in one place. Other services that provide vital information for making informed decisions about charitable giving are GuideStar, BBB Wise Giving Alliance and CharityWatch.

Find out where the money is going: When evaluating how effective a charity is from a financial standpoint, an important consideration is just how much of its income is going toward its mission and programs versus the portion that is being spent on marketing, fundraising, salaries and other overhead expenses. Although there is no one formula used to determine how much of a budget should be earmarked for an organization’s mission, organizations that rate charities use this ratio as an important financial indicator. CharityWatch has stated that it’s reasonable for most charities to spend up to 40 percent of their budget on operating expenses, with 60 percent going to its programs. But as Nolo points out, those organizations that spend 25 percent or less on operating expenses receive this organization’s highest “A” grades.

Focus on no more than a few: With nonprofits soliciting funds just about everywhere you go during the holidays, it can be tempting to make your donation decisions based on convenience. But by concentrating on just a few, you’ll have a better opportunity to vet them for accountability and efficiency, and to make sure that they are doing good works in areas that resonate with you. Furthermore, your money will generally go further if you focus on making larger donations with fewer transactions. As explained by Freakonomics, two donations of $70 are more valuable to a charity than 70 donations of $2, since many charities get charged a transaction fee for each deposit into their financial accounts.

Watch for these red flags: While legitimate charities step up their fundraising activities around the holidays, fraudsters looking to cash in on the spirit of giving are also making their rounds via the phone, internet and in-person contact. Before you hand over your hard-earned money, make sure you’ve done basic research on the organization and verify that the person asking for your donation is authorized to solicit on behalf of the organization. According to the Federal Trade Commission, you should steer clear of any individuals or organizations that:

  • Thank you for a donation you don’t remember making
  • Ask for donations in cash, request that you wire them money or tell you that a courier service or overnight delivery can be sent to collect your donation right away. For security and tax purposes, you should pay by check made payable to the organization or by credit card (after you’ve fully researched the charitable nonprofit)
  • Use a name for the charity that sounds similar to a reputable, better-known organization
  • Insist you must donate immediately and discourage you from researching the organization on your own
  • Won’t provide documentation that the donation is tax deductible
  • Evade questions regarding the charity’s mission, expenses and use of donations
  • Offer a guarantee of sweepstakes winnings in exchange for a contribution. Legally, you never have to make a donation in order to be eligible to win a sweepstakes.

Verify that your donation is tax deductible and keep accurate records: Finally, if you’re planning to take individual tax deductions from your charitable donations rather than the standard deduction, make sure that your donations quality according to the IRS rules and that you maintain proper documentation for your contributions. You can check the charity’s status at the IRS webpage here or by calling 1.877.829.5500. For help in tracking and documenting your contributions, check out Forbes magazine’s “13 Tips for Making Your Charitable Donation Tax-Deductible in 2017.”