Make your Donation Count – Tips for the Donor

Giving Tuesday is a global day of giving celebrated on the Tuesday following Thanksgiving. For many charities, it kicks off the charitable season, when many nonprofits focus on end-of-year giving.

Making financial contributions before the end of the calendar year may also help a donor’s taxes. Some gifts made by December 31 can be deducted on that year’s federal income tax return.

If you are considering making a donation to a charity, there are some tips to consider:

  1. Verify that the charitable organization has 501(c)(3) tax-exempt status
  2. Understand the mission and work of the charity
  3. Review the organization’s finances

1. Donor to-do: Verify the charity’s tax-exempt status

Q: How can I make sure my donation will be tax-deductible?

For a donation to be tax-deductible, the donation has to be made to an organization that has been granted tax-exempt 501(c)(3) status by the IRS.

Having this 501(c)(3) status is not automatic. Nonprofit organizations have to apply for and receive this 501(c)(3) status with the IRS. And nonprofit organizations have to follow certain annual procedures to maintain this 501(c)(3) tax-exempt status.

It is important to check the status of the charity. Some organizations have automatically lost their tax-exempt 501(c)(3) status because they haven’t filed annual IRS return.

You can check the nonprofit’s status with the IRS before you make a gift. Use the IRS’s online tool to verify tax-exempt status (it will be a bit easier if you have the organization’s EIN – employer identification number; you can get this from the charity).

2. Mission Check

Q: Do I like what the charity is really doing? How is the organization making a difference?

Activities. Believing in the overall mission of a charity is important, but you should also find out how the organization works towards its goal. Ask:

  • What programs and activities does the charity offer?
  • How is the organization serving their clients?
  • How does the nonprofit define success?
  • What are key program outcomes or metrics?

Mission and Programs. You should see a clear connection between their mission and their program outcomes. Ask:

  • Do the organization’s activities and programs work to solve the issue stated in their mission?

Organization’s Age. You make also check to see how long the organization has existed, which can help you analyze the charity’s results. Newer charities may not have a huge list of results and accomplishments, but older charities should be able to demonstrate their effectiveness over time.

3. Financial Check

Q: How does the organization spend its money?

Each year public charities must submit an annual reporting return (called a Form 990) to the IRS that shows information about their programs and budgets.

Several publicly available sites share details on tax exempt organizations. One, Charity Navigator, includes evaluations of nonprofits on their website, and they also outline criteria for you to consider as you conduct your own evaluation of a charity’s financial health:

  • Program expenses – How much of an organization’s money is spent on program expenses? Charity Navigator rates organizations higher if they spend about 75% of their budget on program expenses (with the rest going to administrative overhead and fundraising expenses).
  • Executive pay – How much is spent on executive salaries? Cost of living, size of the organization, location, and other factors will affect a CEO’s compensation.
  • Growth of revenue and program expenses – Is the organization growing or shrinking each year?
  • Types of support – What are the charity’s funding sources?

Resources to learn more about specific charities and how to make your donation count

To learn more about specific charities, you may review the following in your research.

Learn more: What’s the difference between Nonprofit and Tax-Exempt? 
Learn more: How do charitable donations affect my taxes?