The Ultimate Guide to Charitable Giving
8.7 MIN READ
Charitable giving is a great way to help others while making yourself feel good about your efforts. Not all charities are created equal, so you should use caution when contributing to any organization.
This ultimate guide to charitable giving will help you understand what to look for and how to decide where to donate your funds.
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What Is Charitable Giving
Charitable giving means you give time, money, or other goods to nonprofit organizations that help people in need. You might give your time handing out food to the needy or providing your professional services for free. Say, for example, you're a hairdresser and offer free haircuts to needy people. This is an example of donating your services rather than money. You can also donate securities, real estate, stocks, and other assets to a local charity.
You might wonder if your charitable contributions are a tax-deductible donation. The IRS has strict rules regarding what can and cannot be deducted from your tax returns as charitable contributions, but there is a long list of non-profit organizations you can donate to and take the tax deduction.
Benefits of Donating to Charitable Organizations
Donating to charity has many benefits, including:
- It feels good
- Studies show that people experience pleasure when they make charitable contributions. Call it a 'warm glow' or the more scientific term, more brain activation, but either way, giving money can make you feel good.
- You might receive tax benefits
- The tax benefits shouldn't be the only reason for giving money, but it's a nice perk. Make sure the charity is on the IRS's list of eligible charities if you want to take advantage of the deductions.
- Philanthropic efforts can activate your brain's reward center
- Some studies compare the feeling you get when you donate to charity to the feeling people get when exposed to other stimuli, including drugs. The feeling releases dopamine which is the happy hormone in your brain.
- Can reduce stress
- Being able to think outside of yourself can help lower your stress levels. This could be due to the level of happiness charitable giving offers, making it easier for you to handle stress when it happens.
- You get the satisfaction of helping others
- Whether you help people in your local community or donate to multiple charities outside the US, it feels good knowing you are helping others. Choosing charitable causes that are important to you can make you feel better about your efforts.
Best Charities to Donate To: What to Consider
Giving money, whether cash or other forms of financial support, is one of the nicest things you can do for someone outside of yourself. But it would be best to always be careful before providing charitable gifts. Just as many non-profits need your help, there are just as many scams waiting to take advantage of you.
Here are the best things to consider before making a charitable donation.
Use a site like the Charity Navigator to read a charity's ratings. The site gives each charity a score (if applicable), so you can tell if it's a reputable organization to give to or if you should look elsewhere. They rate charities on a scale of 0 - 100, with 100 being the highest score. They also rate 'give with confidence' when they have the highest ratings.
Reputable charities will have a presence both online and in person that's easy to research and form your own opinion. If a charity seems pushy or constantly asks for money, it might be up to no good.
A good way to tell if a charity is reputable is to check the IRS's list of charitable organizations. If they are on the list, they are reputable. If your chosen charity isn't on the list, check the Better Business Bureau or the Federal Trade Commission to ensure they're legit before giving money.
National vs Local Charities
As you choose where to donate money to charities, consider if you want to keep it local or spread your giving nationally. Some people even give cash donations to organizations outside the United States.
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5 Types of Charitable Donations
When you're donating, you have several options, including cash, stocks, and certain types of securities.
Private foundations get most of their funds from a small group of individuals. They are often opened by one person or a group of related people. They don't have the same far-reaching efforts as public charities and often need more donations to continue providing support.
When looking at a private foundation vs. a non-profit, you're comparing private charitable organizations to public organizations. As you can guess, public organizations have more money because they get money from thousands or millions of people versus just a small group of people.
Charitable Remainder Trusts (CRTs)
A Charitable Remainder Trust is an irrevocable trust you can set up with cash or other property. During the life of the trust, you receive an income stream. This lasts either for the trust's term or life, depending on how you set it up. When the trust matures, the charity named in the trust receives the asset's value.
Donor Advised Funds
Donor-advised funds are charitable trusts you set up, and that grow tax-free. You can then donate grants to your chosen charities from the funds. The tax deduction for a donor-advised fund is available immediately upon donating.
If you own or buy stocks for a charitable donation, you pass the capital gains to the charity. This strategy offers a large donation to your chosen charity than you might be able to afford. Your charity can take advantage of the larger donations if the stock grows.
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Vetting Organizations to Donate To
As you're vetting organizations to decide who's worth donating to, here are some steps to take.
Use Search Resources
The internet can be your best resource when determining where to make donations. Google, Charity Navigator search tool, and the Better Business Bureau are your three best resources when determining which organizations are legit, along with the tools we share below.
Don't fall for the phone calls you receive asking for donations. If you want to donate money, choose the organization yourself. Non-profits won't advertise or make phone calls to get you to donate. They'll make people aware of their mission and let others know of their ability to collect donations, but they won't be direct about it.
Research and Fact Check
Don't believe everything you read or see online. Do your own due diligence, fact-checking a charitable organization's legitimacy before sending them money. If it seems too good to be true, it probably is, so proceed with caution.
Trust Your Instincts
Always trust your instincts. When you find organizations, see how you feel about their tactics. Are they directly asking for money, or are they showing their audience what they do and who they help? Directly asking for funds could be a red flag, so read it carefully and decide how you feel about them.
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6 Charitable Donation Resources
These charitable donation resources help you get more information about a charity and whether giving money to them is a good idea.
The American Institute of Philanthropy runs CharityWatch. They grade charities based on their expenses and how they manage them. Charities with 65% of their expenses spent on charitable missions rate the highest.
Bright Funds sets up a charitable giving portfolio based on your chosen causes. They ensure you only give to legit charities and focus on charitable giving in health, welfare, water, education, environment, and human rights.
If you want to give internationally, GiveWell can help you understand which charities are legit. They also help you understand which charities on their list need the most financial support.
Universal Giving helps spread your charitable donations to the charities within the realm of what you want to help. They focus on children's charities but can help potential donors in just about any area.
Philanthropedia focuses on charities dealing with violence, international disasters, and climate change. They create a list of the best and worst charities to consider.
Charity Navigator rates over 9,000 charities. They make it easy to determine which charitable organization to give to based on your desires.
Charitable Giving FAQ
Are Donations Tax Deductible?
It's always best to talk to your tax advisor about your charitable deductions, but many contributions have tax benefits. You must contribute to a non-profit charity listed on the IRS list to get any tax deductions. When in doubt, it's always best to only seek tax advice from a tax professional.
Non-Profit vs Foundation: Is There a Difference?
A non-profit charity is usually publicly funded, which means they have more access to funds than a foundation. Since foundations are privately owned and funded, they may not be as far-reaching but can still be some of the best charities.
Not-For-Profit vs Non-Profit: Is There a Difference?
Non-profits run like a business and try to make a profit. Non-for-profits aren't in business to make money for themselves but instead to make money for those they represent.
Is There a Difference Between Charity and Philanthropy?
Charitable giving focuses on helping people immediately, providing funds they need immediately. Philanthropy, on the other hand, focuses on the long-term solutions to major world problems versus solving an immediate problem in the short term.
What Deductions Can I Claim Without a Tax Receipt?
You can claim cash donations of up to $250 if you don't have a receipt. You cannot claim property donations or any cash donation higher than $250. The IRS will require that you provide proof of the donation with a payroll deduction or bank statement.
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Donating Money to Charities: The Bottom Line
Giving money can feel great when it's done right. Charitable giving is a way to help the world, even if it's a few dollars at a time. Use your resources, find organizations, and make the most of your ability to give to others while doing good in the world.