The deadline to file your tax return is tonight, but Americans who deduct charitable expenses from their tax returns may be wondering if their generous act of philanthropy is going exactly where it's directed.
Certainly, charitable groups benefit from so many Americans steering tax breaks toward deserving non-profits. According to a new E*TRADE StreetWise study, 47% of all U.S. adults (and 61% of baby boomers) deduct charitable gifts from their tax returns.
The problem is, they don't always follow up and ensure the cash is going where it's supposed to. A separate study from U.S. Trust estimates that approximately 80% of high net worth donors partially vet the non-profits they donate to, usually by volunteering directly with the charity. Unfortunately, fewer than 50% actually dig into the non-profit's financial forms to see where the donated money winds up.
Of course, there are efficient and effective ways of checking a charity out to make sure your money is being steered toward its original destination - to the people and groups that need the cash most.
"The best way to make sure charitable gifts will be used properly is to "check out" the charities you are considering supporting at multiple levels," notes Michael J. Montgomery, founder of Montgomery Consulting, a fundraising consulting firm located in Detroit.
For charitable givers looking for direct evidence their donated money is on the right track, Montgomery advises taking a three-tiered "level" approach, as follows:
Level One - Look for "legitimacy", Montgomery advises: "Ask these questions - are they listed on the IRS website's list of 501(c)(3) organizations? And are they registered with your state government?" Typically, reputable charities are registered with the state's Office of the Attorney General, he adds.
Level Two - Look for efficiency. "Look your charity up at Navigator.org, which will tell you if the charity has a good rating," Montgomery says. "These ratings are still heavily influenced by the ratio of spending on administration and fundraising to spending on programs. You could also look up their 990 (tax form for non-profits) at the Foundation Center's "990 Finder", and form your own impression of how well or poorly they use donations."
Level Three - Look for reputation and effectiveness. "Google the charity," Montgomery states. "Journalists love to do nonprofit exposes. If they had a scandal or ever lost major funding because of ineffectiveness, someone will have written about it."
Non-profits with good reputations say that of all the vetting moves a charitable giver can make, checking with the IRS is the best way to go.