Americans donate billions of dollars each year to nonprofits that support the causes they believe in. That money is essential to helping those nonprofits carry out their missions.
But how do you know that money will be used the way you want?
If you’re donating money to a charity, take a minute to make sure you know where your money is going before you make that donation.
3 Things to Consider When Donating Money to a Charity
If you have the money to make donations — or even if you don’t, but feel strongly about a certain cause — be sure you understand where your money is going and what it means for your personal finances.
1. Make Sure You’re Donating to a Legitimate Organization
It never hurts to check out the charity’s profile on a watchdog site such as Charity Watch.
You can search the organization and find its address, mission statement and total expenses vs. total contributions. Charity Watch will also tell you how much it cost the charity to raise $100, which can be a sign of the organization’s efficiency (or lack thereof).
It also gives the organization a grade. For example, the Multiple Myeloma Research Foundation received an A+, while the National Alliance on Mental Illness received an A-.
2. Know Where Your Money Is Actually Going
You don’t want your hard-earned money to be going into someone else’s pockets — unless that’s who you donated it to.
The number that can help you understand where your money is going is called the “spending ratio.” Debra Snider, vice president of operations at GuideStar, shared her rule of thumb with Real Simple.
“The most efficient organizations spend at least 75% of their budgets on programs and services… with the remainder going toward administration and fund-raising costs,” she said.
Snider said higher spending ratios are preferred, because they illustrate the charity’s productivity.
Finding the spending ratio super simple. Go to Charity Watch and, again, search for the organization. Scroll down to find the program percentage under “Ratings & Metrics.”
It also never hurts to simply call the organization and ask.
3. Take Note of the Group’s Nonprofit Status for Your Taxes
When you make a donation, check to see if it’s tax deductible. This is important to some donors because the money donated can be deducted from their taxable income. That means it won’t be taxed.
To determine the status of your monetary contribution, look for the charity’s tax status. Once again, you can find the tax status on Charity Watch. (It’s right under the address.) The most common tax statuses for charities are 501(c)(3) and 501(c)(4).
Take that information and head over Charity Navigator, which has a long list of types of nonprofits and tells you, very clearly, if your contribution is deductible. It says a 501(c)(4) donation is generally not tax deductible, while donations to 501(c)(3)s are.
As a result, if you’re in the business of getting a tax deduction, you’ll want to look for a 501(c)(3) organization before you make your donation.
The IRS has a great resource for those of you who are looking to deduct your charitable donations. Read up!
Please note, though, that due to the 2017 tax law, the standard deduction for an individual is $12,000. For a married couple filing jointly, the standard deduction is $24,000. That means your deductible expenses — including your charitable donations — will need to equal more than $12,000 (or $24,000, if you’re married and filing jointly) to be able to take advantage of this tax benefit. For many of us, that will not be the case.
Carson Kohler (@CarsonKohler) is a staff writer at The Penny Hoarder. Deputy managing editor Caitlin Constantine contributed to this report.
