Year-End Giving – How to make your donation count
The end of the calendar year is a popular month for donors to make charitable contributions. But before sending a donation to a nonprofit organization, we recommend that you:
- Verify that the nonprofit organization has 501(c)(3) tax-exempt status
- Understand the mission and work of the charity
- Review how the charity spends its money.
1. Verify tax-exempt status!
How can I make sure my donation will be tax-deductible? Is the nonprofit 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).
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?
- Who are 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:Â 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. Money 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.
You can review these Form 990s to evaluate 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? You should notice small increases in revenue to cover inflation. If revenue stays the same or decreases, the organization may actually be cutting back on their programs.
- Types of support – What are the charity’s funding sources? Many nonprofits find success through diverse funding sources.
Common Q-A About Giving
Does a small gift to a charity really make a difference?
Yes! Nonprofits encourage gifts of all size. Give what is appropriate for you. Your year-end giving will count if it is meaningful to you.
What about bucket donations?
Should I drop change in the bucket outside of box stores?
Many people prefer to do their own research first. It’s likely that you don’t have time to research the charity when someone rings a bell and puts a charity bucket in front of you as you’re leaving a store. And you probably don’t have time to investigate a nonprofit that your store cashier is encouraging you to “give a dollar” or “round up” your bill.
But if you are excited about the cause and want to support it, go for it. Millions of dollars are raised each year from nation-wide store or restaurant check-out campaigns. And it is likely that the store or restaurant has conducted background research on the charity.
Should I make one large gift to one charity? Or spread it out to several organizations?
We recommend that, after you have conducted researched on the charities, that you give to those that are most meaningful to you – whether its one charity or several.
Resources to learn more about specific charities
To learn more about specific charities, you may check the IRS’s online tool.
Related articles on charitable giving
Year-End Giving – How Do My Donations Affect My Taxes?
Year-End Giving – Can I Deduct the Value of My Volunteer Service?
Happy giving!
