‘Tis the Season For Donations
 By R.K. Sparkman

Your business has touched lives while making you money. And now through charitable giving you want to touch other lives with the money you’ve made.

But how do you ensure that what you give will be used for the good purposes you intend? How can you be sure that the money you give conforms to tax deductible rules? And how do you choose which organizations to support?

First, there are some rules of thumb to apply when it comes to charitable donations.

1. Record all your donations. Keep receipts, cancelled checks and bank statements.

2. Ask your tax advisor what related expenses qualify as tax deductions. When you give time and expertise rather than money, your charitable giving may or may not be tax deductible. Find out for sure from your tax professional.

3. Don’t give cash. Even when you get a receipt, cash is a temptation for the charity’s collection personnel. Remove the temptation. Write checks payable to the organization by its official name to ensure the money goes where you intend it to go.

4. Don’t contribute to solicitors who can’t show full identification for themselves and for their organization. Any reputable solicitor and charitable organization will be willing to answer questions you have about their operation, such as how the money is used and what percentage goes to programs compared to the amount going for administration and promotion. If they are hesitant to answer these kinds of questions, regard that to be a red flag.

If you are proactive, you probably initiate the search for deserving, qualified charities. Or, perhaps your charitable giving comes after organizations seek you out. Either way, there are a few factors to consider, and some places that can help weigh those factors.

If you wish to deduct charitable giving from your income taxes, the organization receiving your money must be a 501(c)(3) tax deductible group under the Internal Revenue Code.

Not all “tax exempt” organizations qualify. “Tax deductible” organizations typically are charitable, educational, religious and scientific, but also may include those that promote amateur sports competitions or animal protection.

You can check a group’s legitimacy with your state government office responsible for registering nonprofit organizations. Usually that office is associated with the state attorney general. Better Business Bureaus also have experts that keep tabs on charitable organizations.

The charity itself can – and should when asked – provide you documents useful in determining its legitimacy and in measuring its effectiveness.

All 501(c)(3) organizations also are supposed to create and make available for inspection an annual report that details their activities as well as identifies its board members and staff. Ask for it.

Also ask for the organization’s annual 990 tax form. It’s a public document and should show you generally how the organization spends money it collects.

Despite some groups’ claims that “all proceeds go to charity,” such an assertion often refers to all proceeds that are left after paying the organization’s bills. To maximize the impact of your charitable giving, consider only organizations whose fund-raising and administrative costs represent 25 percent or less of its income.

Finally, there are organizations that can help you check out many charities’ bona fides.

CharityChoices.com, www.charitychoices.com, provides information on charities that are part of the federal government’s charity drive. They meet certain accountability standards, including low costs in relation to program expenditures.

GuideStar, www.guidestar.org, is another clearinghouse and database of information about nonprofit organizations. You can obtain free reports on the organizations tracked by GuideStar.

Also watch your local newspaper. During the holiday season, many local newspapers run profiles of local charities that need donations. You’ll often find out about reputable organizations that you didn’t even know existed. And giving to local groups is a great way to keep your money working in your community.


(Posted December 2005)

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