Each time we donate to a nonprofit organization, we hope and believe our funds will be used to further that organization’s mission. But how do we know if that actually happens? Taking time to vet your favorite organizations can help you ensure your money will make a meaningful difference and that your donations will be tax-deductible.
With approximately 1.8 million nonprofits1 operating in the United States, a first step in considering a nonprofit is to simply narrow down your list of potential recipient organizations. Besides the large number of charities, some have names that do not reflect their mission or that sound eerily similar to other organizations. The result is greater potential for confusion, even among practiced donors with heartfelt intentions. Following are a few tips on how be an informed donor whose gift is more likely to have the impact you want.
1. Charity starts at home.
Some experts suggest that the easiest way to donate is by giving to organizations you know. In a crowded nonprofit landscape, giving close to home offers the benefit of visible results and may help you feel more connected to the charity receiving your gift. Examples of local giving might include a food pantry, school group, your local library or a religious organization.
2. Consider impact.
Many donors’ philanthropic priorities are tied to their values or personal experience. For example, you want to target your dollars toward research into curing a specific disease, while your spouse may be more drawn to education-related initiatives. Once you have a clear vision of what causes are important to you, you can find organizations whose missions match your interests.
3. Check status.
First, make sure the charity you are considering supporting is a tax-exempt 501(c)(3) public charity. If you aren’t certain, you can search on the IRS website2 or on one of several websites that evaluate nonprofits. A charity’s status as a nonprofit not only helps ensure that it is filing important information annually with the IRS but also that your donation will be tax deductible.
4. Do your homework.
The growing number of websites that evaluate nonprofits examine areas such as the organization’s mission, size, effectiveness and financial transparency. These sites also include details about a nonprofit’s activities, and some even compare different organizations. It is important to remember, however, that some larger organizations may appear better because they have the time and funding to collect data and present themselves in a positive light, while smaller charities may actually do more with fewer resources. Some respected evaluation websites include Give.org, CharityWatch.org, CharityNavigator.org and GiveWell.org.
5. Do your homework 2.0.
Have you reviewed your favorite charity’s website? Most nonprofit websites outline their mission, activities, leadership and size. You may also find materials such as annual reports. Again, it may be important to consider that smaller organizations may not have the resources to provide the same details that a larger charity offers.
6. Beware of scams.
In 2021, the Federal Trade Commission and 46 agencies3 halted a large-scale telefunding operation that targeted 67 million consumers with 1.3 billion deceptive charitable fundraising calls, primarily illegal robocalls. The operation fraudulently collected over $110 million. To avoid fraud, experts suggest avoiding gifts to organizations that call or text you with unexpected requests. Instead, consider giving only to organizations you know or have thoroughly researched. To avoid fraud, experts suggest avoiding gifts to organizations that call or text you with unexpected requests. Instead, consider giving only to organizations you know or have thoroughly researched.
7. Follow your investment.
If unsure, you can always follow up with charities later to find out how your money is being used. While you cannot expect to receive a list of itemized expenses, most nonprofits should be able to communicate their progress and how your gift fits with their mission. Larger organizations may be able to provide a progress report or point to one on their website. If you find it hard to evaluate impact, you can instead rely on an intermediary organization — one like United Way — that conducts its own research into its partner charities’ impacts.
Nonprofits are often expected to make a significant difference even when operating on small budgets. No matter how you decide to give or in what amount, your generosity is likely to be greatly appreciated.
1 CharityNavigator.org
2 IRS.gov
3 FTC.gov
This material is being provided for educational and informational purposes only. D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2024. All rights reserved. Member FINRA and SIPC.