Ask An Advisor: Charity Scams

Detail of a photograph by Fondazione Cariplo of "The Confession" by Giuseppe Molteni via Wikimedia Commons under the Creative Commons Attribution-Share Alike 3.0 Unported license.

Dear Abigail,

I have a dear friend who recently realized he was duped by an organization claiming to benefit disabled veterans and their nonprofit caregiver organizations.  There was a national news story a few weeks ago that revealed the truth about this organization and its scam of the American public.  As a person who is interested in donating what funds I may have available, hopefully on a larger scale as my financial situation improves over the years, what advice can you offer?  Are funds that have been donated still a tax write-off even if the organization did not properly handle them?  Are there any staple rules of philanthropy for beginners?

– Seminar Attendee

Dear Seminar Attendee,

These are good questions.  First, if you make a charitable contribution to a qualified organization (must be 501(c)(3) or exempt organization, like a church), then the contribution is tax-deductible.*  The charity will know whether or not they are a qualifying organization, and should issue a receipt to you for your donation.  Even if the money is defrauded from the charity after you contribute it, you still get your deduction.*

Secondly, here are a few ideas for responsible and effective giving when you have the wherewithal:

  1. Focus on what matters most to you.  I don’t know about you, but I think there are a lot of worthy causes out there.  It’s easy to get distracted amongst a lot or charities and end up giving $10 here and $20 there to dozens of charities.  Instead, I suggest you focus on the 1-3 causes that matter most to you.  There are two reasons for this.  the first is that, when a person focuses their attention on just one to three things, there tends to be a lot more progress made than when a person tries to focus on a couple dozen things.  You’ve probably experienced this in other areas of your life.  By contributing larger sums to a smaller number of charities, you reduce the charities cost per contribution, which means your contribution is used more effectively.  Also, focusing on just a few charities reduces record keeping costs.  When tax time rolls around, you only have to worry about getting two or three statements instead of tracking down a dozen statements and receipts.
  2. Don’t judge a charity on administrative costs alone.  One of the more common tips you hear about contributing wisely to charities is that you should avoid charities with high administrative costs.  While there are some charities that do a better job supporting their CEOs than their cause, there are also worthwhile charities that do have higher-than-average administration costs due to the nature of the work.  Use your good judgement on this.
  3. Don’t stop your research here!  There’s a great website that helps donors learn more about the charities they are thinking about contributing to: Charity Navigator.  While I think they’re star rating system lacks nuance, it’s a good place to start you education as a philanthropist.

Good luck!

– Abigail

*  There are a number of detailed rules about this; and you need to itemize and keep appropriate records to get the deduction.  Talk to you tax advisor about your specific situation.

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