The holidays and year-end tend to be the time where people make donations to charitable organizations. One of the reasons for this is to take advantage of the tax benefits associated with making donations to legitimately registered 501(c)(3) charitable organizations by December 31st of the current tax year. Qualified donations may be taken as an itemized tax deduction on your tax returns, in accordance with IRS guidelines, for the applicable tax year. Tip: Consult with a certified tax professional for your individual tax situation.
Of course, another reason (and quite an important reason) to make donations is to help those less fortunate and those in need. This may include donating to an organization like the American Red Cross which provides disaster relief and vital services in times of need, the Make-A-Wish Foundation which helps to provide/fulfill wishes of children suffering from life-threatening medical conditions, educational institutions (like your Alma Mater) to help provide scholarships to future students and/or fund crucial programs and many other legitimate charitable organizations working for and supporting important causes.
However, before donating, be sure to do your due diligence especially when donating to charitable organizations for which you are unfamiliar or less familiar with. First, learn more about the charitable organization and what exactly they do. Make sure this organization is one you can associate and connect with. There are many legitimate charitable organizations out there; unfortunately, it’s not possible to donate to every single one so choose those charitable organizations that you have a strong bond with and whose cause/mission you deeply support.
Furthermore, you want to find out how the donations are spent and allocated. If the charitable organization states the donations are used for disaster relief, ask how much of it goes towards actual disaster relief vs administrative and other incidental costs. Also, ask what specific disaster relief programs are the funds used for, how and where exactly are those funds used. Think of this process of due diligence like a major investment (ex: buying a car or a home) and ask for specific, detailed information. If the charitable organization truly wants and needs your help and your donation, they will be forthcoming with the information and/or provide a means of getting you that information. You should also check to see if the charitable organization is registered as a 501(c)(3) charitable organization. You can obtain this information through the Internal Revenue Service (IRS).
Once you’ve performed your due diligence and have determined that this is an organization that you want to donate to, donate what you can and not necessarily what the organization is asking for. An organization may ask for $100 but if you can only donate $25 then that’s what you donate. Donate within your means. A donation is not supposed to create an undue burden or hardship on yourself. If you cannot donate, make it clear right away that you simply cannot donate to the organization. While you may feel pressured to donate, this is a voluntary choice and you should not feel otherwise. A charitable organization working to support those in need should understand that if you cannot donate, you should not be forced or pressured to do so.
With some donations, you can specify where or what the donations should go towards (ex: where it’s needed most vs. a specific program) so feel free to specify how your donation should be spent. Throughout the year, some organizations may hold campaigns where there may be a matching gift program dollar for dollar. These are times where donating may have a greater impact (ex: if you donate $100 on a matching gift program, your donation will be doubled) so you don’t need to wait until the holidays or year-end to donate. Donate when you can and within your means. Also, donate in a manner that makes you feel most comfortable. Most charitable organizations take donations by phone, online, by mail and even in person so donate your way!
Once you make your donation, be sure to keep a record and retain the receipt provided by the charitable organization if you plan on taking the tax deduction. Your tax professional will need it when preparing your tax returns or if you prepare your own returns, you’ll need it for reference. This receipt should be kept with a copy of your tax return and other vital documents related to the tax return should you need to provide it to the IRS or a tax professional later.