#GivingTuesday is a global day of giving.
Celebrated on the Tuesday following Thanksgiving and the shopping events Black Friday and Cyber Monday, #GivingTuesday kicks off the charitable season, when many focus on end-of-year giving.
Giving before the end of the calendar year may also help a donor’s taxes. Giving money or goods to a tax-exempt charity before December 31 can usually be deducted on that year’s federal income tax return.
This #GivingTuesday (and other giving days), we recommend the following before sending a donation to make your donation count:
- Verify that the charitable organization has 501(c)(3) tax-exempt status
- Understand the mission and work of the charity
- Review how the organization’s finances
1. Verify tax-exempt status
How can I make sure my donation will be tax-deductible? Is the nonprofit organization a 501(c)(3) organization?
For a donation to be tax-deductible, the donation has to be made to a nonprofit organization that has been granted 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 this status of your charity — since 2001 the IRS revoked the tax-exempt 501(c)(3) status of 500,000+ nonprofit organizations because they didn’t maintain their status.
You can check the nonprofit’s status with the IRS before you make a gift. You can verify that the charity still has its 501(c)(3) designation from the IRS by utilizing 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).
- Learn more:
- What’s the difference between Nonprofit and Tax-Exempt? Learn more: How do charitable donations affect my taxes?
2. Mission Check
Do I like what the charity is really doing? How is the organization making a difference?
Activities. Believing in the mission of a charity is important, but you should also find out how they work towards their goal. Ask:
- What programs and activities do they offer?
- How are they serving their clients?
- How do they define success?
- What are their program outcomes?
Mission and Programs. You should see a clear connection between their mission and their program outcomes. Ask:
- Do the activities and programs they offer 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.
Where to check? Many nonprofits publish an annual report to highlight their successes. This can be a good place to start to get a snapshot of a charity’s work.
3. Financial Check
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.
- 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? Many nonprofits find success through diverse funding sources.
Resources to learn more about specific charities and how to make your donation count
To learn more about specific charities, you may check the following in your research. Ask the charity their EIN (employer identification number) for ease in research.
Learn more: What’s the difference between Nonprofit and Tax-Exempt?
Learn more: How do charitable donations affect my taxes?