It’s the season of giving—and that includes donating to charitable organizations. The need is great, for everything from food for the hungry to shelter for pets. There’s a nonprofit for everything: 1.6 million organizations hold tax-exempt status from the IRS in the U.S., and some 9,000 have that status in New Mexico. Charities’ requests are especially hefty in 2020, with the pandemic increasing the demand for services and cutting nonprofit’s ability to raise money with their usual line-up of in-person galas, fundraising 5K runs, and charity drives.
Americans usually respond to this need in kind. In 2019, they gave $449.64 billion, a more than 5% increase from the previous year. You may want to give back, too. With so many worthy causes, how do you decide which ones to donate to? And what impact will your charitable donations have on your taxes? We’re breaking it all down for you here.
Picking Where to Give
Whether you’re giving a million dollars or $10, you likely want your gift to do the greatest good possible. Here are three ways to make sure your donation is well spent.
1. Pick your Goals.
What causes are you passionate about? Do you want to support childhood literacy or clean water around the world? Would you rather support Alzheimer’s research or serve people experiencing homelessness? Do you want to give locally or globally? List the sectors and topics that have personal meaning to you and research nonprofits that support those areas of interest. Look for organizations with a clear mission and purpose.
2. Vet your Charities.
Start by verifying that your charity of choice is indeed a registered nonprofit. Most hold a 501(c)(3) status with the IRS, and they’ll have documentation saying so.
You’ll also want to make sure the nonprofit you’re giving to will use your money wisely. How do you know? A number of organizations, including GuideStar, Charity Navigator, Charity Watch, and Give Well, research charities’ financial health, as well as their commitments to accountability. Top nonprofit organizations undergo financial audits by outside firms to verify their funds are used appropriately.
The third-party organizations can also provide insight into a nonprofit’s “overhead ratio,” in other words how much of their funding goes to operating the charity and how much goes to direct services. A good benchmark is that a nonprofit spends 75% of its income on programs.
3. Go Deeper.
Beyond looking at where a charity spends its money, you’ll want to evaluate if the organization is effective. In other words, is all that money having an impact? Read through the nonprofit’s annual reports to get a sense of its scope of services and if it is making a difference.
How Will Donating Affect your Taxes?
Giving may mean you get in return. Many donations to charitable organizations are tax deductible. For the 2020 tax year, taxpayers can write off up to $300 of cash donations without having to itemize. To write off a larger amount, you’ll need to itemize—meaning your total deductions exceed the standard deduction amount. In 2019, that meant having deductions in an amount larger than $12,200 for singles and $24,400 for married couples.
If you’re aiming for a large deduction, you’ll need solid records to back up your gifts. You can only itemize a gift of $250 or greater to a single organization if you have acknowledgement of the donation from the charity. Be sure you have a receipt or thank you letter on hand as verification. You can also provide a bank record showing the gift.
Other Ways to Give
If you can’t give money, you can donate in other ways, too. More than 63 million Americans—or 25% of U.S. adults—volunteer their time and skills each year. Many charities have limited staff members and need volunteers to supplement the work they do. VolunteerMatch pairs organizations looking for help with people wishing to donate time. You could give blood, organize a toy or clothing drive in your neighborhood, or encourage your employer to give. You can also share a charitable organization’s efforts on social media, which doesn’t cost a penny but still gives back.