It’s that time of the year when there is a big push for end of the year charitable giving.
Before you make a charitable donation this year, be careful to avoid being a victim of unscrupulous scammers posing as legitimate charities. Unfortunately, there are a lot of scams via email, mail, and phone that can seem legitimate.
Each US-based nonprofit soliciting donations is required to register with the state’s Secretary of State or similar office and obtain an IRS Federal ID number.
Signs of charity scams
- The donation requires cash or money to be wired.
- There is pressure to donate.
- The name is like a well-known charity but not exactly the same.
Do your homework
Many stories have become national news where prominent charities were exposed for not spending raised funds wisely. The IRS does not require that a certain percentage of funds are used for a charitable purpose. If you are considering donating to a charity, do some homework to assess if the funds are funneled to the cause and how much is spent on executive compensation or overhead. Review the website or mailing soliciting a donation to assess how money is raised and how money is spent. Be wary if a large portion of funds raised are via ‘professional fundraising events’ as one example. Reputable charities will have such information available on the website so you can determine and compare charities you are interested in supporting.
It is important to keep in mind that donations via crowdfunding sites such as GoFundMe and Kickstarter are usually not deductible unless they are run by a public charity. In other cases, contributions are considered “gifts,” not charitable donations.
There are many worthy charitable causes that need ongoing support to fulfill their mission. Do your homework so your charitable donations are put to good use.
Lastly, if you have unrealized gains in publicly traded securities, consider donating a portion of one of these securities to a charity to avoid the capital gains tax while also enjoying the same tax deduction for their fair market value (FMV).
Charitable giving should be part of an effective tax planning strategy. Learn more about our services for businesses and individuals.