Making Cents: Vet charities before you donate
By: John P. Napolitano, CFP®, CPA, PFS, MST
This time of year we all receive those same email, telephone or direct mail solicitations from a charitable organization asking for a donation to support a needy group. It isn’t easy to say no as the solicitors are well trained at pulling your heart strings to get you to open up your wallet. But a better plan is a thoughtful approach to philanthropy to avoid knee jerk reactions based solely on emotion.
Sometimes the charities or callers are ones you recognize. Other times, they are organizations you’ve never heard of. One reader recently reported to me they received a suspicious fundraising call and decided to forward the number to the local police department. The police later informed him the call came from a disposable cell phone – likely not from a legitimate charity but from a scam artist trying to take advantage of your good nature.
I am not writing this to thwart your future generosity, but rather to provide guidance on researching an organization before donating your hard earned money.
The first major concern is whether the charity is a legitimate not-for-profit organization. If they are not, under an IRS audit, your charitable deduction would be disallowed. To check this, you can simply confirm their registration at the Secretary of State's office. But doing this alone is not nearly enough.
For those really wanting to go deep, ask the charity to supply you with access to their annual report, audited financial statements and IRS form 990. These should tell everything you need to know. You can check www.charitynavigator.org which answers common questions about charities and charitable giving.
Some people prefer to donate to well-established charities with huge endowments and reserves. Others donate to smaller, local charities assuming they more desperately need contributions. If you can, you might want to actually witness the charity in action. Visit their physical location, see their programs live, and talk to the employees and volunteers. You may learn from some organizations that donating your time is almost as valuable as your money.
Another significant issue is the percentage of the organization’s revenues that actually get deployed to the core charitable purpose. Naturally, the higher the percentage of their fund raising that goes towards the entity’s charitable purpose, the better.
The next issue is the charity’s cost to raise funds. It should come as no surprise organizations using outside fund raising companies and telemarketers are frequently on the higher end of these cost percentages. You may want to know how much of your contribution actually gets eaten up by fundraising costs instead of its stated purpose.
There is unlimited information available about charitable organizations, both printed and online. Giving is good, but even better when you know your donation is being used as you intended.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200