For so many of my readers, one of your Core Values is charity. Giving back. During these difficult times, many of you want to help. We do too. Our firm is donating to a variety of nonprofits that have been impacted by the coronavirus crisis, selected and vetted (read on...) by our staff.
I often talk about tax-efficient ways to give - using appreciated stock or a donor advised fund. But today, I want you to take one more step before you donate. Make sure you consider if the charity is legitimate.
It is a concern facing anyone who wants to donate money to what appears to be a worthy cause. Unfortunately, a stream of fake charities continuously pop up in the wake of national and international disasters to take advantage of good-hearted people who want to help. Reports of mismanaged charities and outright charity fraud often make the news and leave many people with doubts about which charities are legitimate and which ones are run only to help the scammers behind them.
It is critical for the public to financially support real charities which are doing good work around the world. It only takes a few extra minutes to ensure your money is going towards a real cause.
Here are four things you can do to lower the risk of charity fraud:
#1: Utilize Charity Watchdog Sites
Before donating to any new charity, check it out at a charity watchdog website. These watchdogs can help you to separate official charities from potential scams. There are several watchdog groups online, and each one uses different criteria to rate charities. Watchdog groups do not cover every real charity in the U.S., so you may want to search on a couple of sites before making up your mind. Four of the most well-known and trusted charity watchdogs are:
Charity Navigator – https://www.charitynavigator.org/
CharityWatch – https://www.charitywatch.org/
BBB Wise Giving Alliance – http://www.give.org/
GuideStar – https://www.guidestar.org/
#2: Confirm They Are Doing What They Say They Do
Many worthwhile local charities won't appear on any watchdog safe lists because they are just too small to monitor. That doesn't automatically mean that they are not real or that you should not support them. However, before giving money to any local charity that is not on a watchdog safe list, do yourself a favor and double check with the people the charity claims to be helping.
#3: Verify Their Nonprofit Status
Donating money to a worthy cause is a great way to assist other people in need, but it can also help reduce your tax bill. When you contribute to a nonprofit which is a registered as a 501(c)(3) tax-exempt organization, you may be able to deduct your contribution. (Ask me about itemizing vs. taking the standard deduction – and “chunking” donations into a single tax year…)
However, be careful. Some scammers will tell you that donations to their organization are tax-deductible even when they are not, resulting in a situation which may cause problems later.
To verify the 501(c)(3) status of any charity in the US, use the Tax-Exempt Organization Search tool on the IRS website:
With a little additional effort, you can make sure that your charitable giving is directed towards legitimate organizations that are doing the good work you support.