Be An Informed Donor
If you want to make charitable donations before the end of the year, you’re not alone. According to Giving USA, an estimated $484 billion was given to charity in the U.S. in 2021, a 4% increase from 2020.
Regardless of the causes you support, there are a few questions to keep in mind before opening your wallet.
Are they a qualified charitable organization?
While most religious organizations, such as churches, synagogues, mosques, and temples, are eligible to accept donations, there are some exceptions. But what about the local food bank or animal shelter? Ask to see the organization’s IRS Determination Letter, which tells you if the organization can accept donations. If that’s not possible, you can check directly using the IRS Tax Exempt Organization Search Tool.
Also, keep in mind that any donation given to an individual does not qualify as a tax-deductible donation, no matter how worthy their cause.
Did you receive a gift?
Be mindful of gifts. If, for example, you write a check for $250, but receive two complimentary tickets to the organization’s annual gala, you can only deduct the amount after the ticket cost is considered. The same goes for t-shirts or other commemorative items. If a gift is offered in return for a donation, ask the organization if they can deduct the cost of the gift from your donation total in their thank you letter.
Speaking of thank you letters, be sure you get one, or a receipt that documents what you donated to the organization. This is especially important if you donate over $250 because the IRS will need a receipt or letter for documentation purposes.
Do you know how they use the funds they receive?
You have the right to ask to see a charity’s annual reports and documentation on how they allocate funds. According to Charity Navigator, they give the highest rankings to those organizations whose ratio of program expenses is 85% or higher of the organization’s total expenses. Keep in mind that a percentage of funds needs to go towards staff, maintaining finances, and running programs.
Taking a few minutes to research can help ensure that your money is used wisely. And if you do choose to donate to an organization, be sure to do so before December 31st, or your tax deduction will have to wait until next year.
Visit our website for Donation Resource Guide and our Tax Saving Tips for you and your clients
This content is developed from sources believed to be providing accurate information. The team at HCF is a resource for philanthropic clients and donors. This blog is provided for informational purposes only and is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.