Whether you're looking to take advantage of a tax deduction or just want to donate some spare cash for altruistic purposes, the first step to donating money is to find a charity that suits you well and then check out charities to find one that will spend your money wisely. Those interested in helping the homeless have a slew of options to choose from, as do those who prefer to donate to animal-rights groups. Find a cause that tugs at your heartstrings the most and go with it.
Once the general area of interest has been narrowed down, the next step to donating is deciding where the money should go. Some people prefer to keep the money they donate in their general vicinity in order to see a positive change in their neighborhood or town. In instances like these, local food pantries and homeless shelters are good picks. On the other side of the spectrum, many people would rather see their money go wherever it's needed the most. Good causes for people of this mindset include the Red Cross and Doctors Without Borders.
How to Weed Out the Bad Charities
Ideally, all tax-exempt charities would put 100% of your donation to good use. Unfortunately, this isn't always the case. Thankfully, groups like the American Institute of Philanthropy (AIP) and GuideStar act as watchdog organizations.
At www.charitywatch.org, the Web site run by the AIP, people looking to research a charity can look though thousands of nonprofit organizations and view their ratings. You can look through popular causes like cancer, abortion, child sponsorship, human rights and international relief.
AIP rates organizations based on the percentage of the money raised that goes to the causes they support. Good grades go to charities that spend 15% or less on fundraising and administrative costs. Groups that spend 40% or more on telephone fundraising or marketing efforts don't fare as well, receiving failing grades.
With charities involved in cancer research and prevention, there are several examples of good, average and poor organizations in terms of fund allocation. Sadly, about half of the cancer charities that the AIP rated in 2007 received a D or F grade. The Breast Cancer Research Foundation (ABCF) granted 87% of its budget to medical research, while the American Cancer Society (ACS), a group that raised $848 million in contributions in 2005, only granted 60% of its budget to program services. The Lance Armstrong Foundation (LAF) has been around for more than 10 years, yet spent around 45% of what it brought in on donation solicitations.
Essentially, you shouldn't donate a dollar to any organization without first researching the charity. As the AIP proves time and time again with its ratings, you can't rely on an organization's name or spokesperson alone as a sign of whether or not it's worthy of your money.
Tax-Exempt Doesn't Necessarily Mean Tax-Deductible
While there are more than a million tax-exempt organizations competing for your donations, not all of them can give you the tax deduction you may be looking for. The best way to figure out if your donation to a charity is tax-deductible is to ask somebody at the organization directly. If for some reason the person you talk to isn't sure, you can find out by checking the group's status in IRS Publication 78.
Publication 78 lists almost all of the charitable organizations whose donations qualify as tax-deductible. The online version of the document, located at www.irs.gov/charities/article/0,,id=96136,00.html, allows you to save time by searching for an individual charity by name.
What kind of benefit you get from a tax-deductible donation depends entirely on which tax bracket you fall into. For example, a person in the 10% tax bracket will get a $10 benefit out of a $100 donation. Likewise, a person in the 35% tax bracket will get a $35 benefit out of the same $100 donation.
Best Ways to Donate
There are several different ways to donate money to a charity. Most Web sites will accept just about any major credit card, but it's important to note that the credit card companies usually take a small percentage out of your donation as a fee. Despite this fee, many groups prefer that you donate with a credit or debit card so that the funds are immediately available for them to use.
The only way to circumvent the credit card fee and ensure that 100% of your donation goes directly to the charity is to send in a check or money order. It's not recommended that you send cash through the mail, although there are circumstances where giving cash directly is acceptable. For instance, the Salvation Army kettles that are found outside of many grocery stores around the holiday season are a great place to toss some extra change.
How to Take a Tax Deduction for Your Donation
In order to claim a deduction, you have to fill out a 1040 form, available on the IRS Web site (www.irs.gov). Donors need to itemize all deductions on Schedule A. Those who choose to take standard deductions or fill out the short version of this form cannot claim their contributions.
For donations to a charity that are less than $250, you don't need to do much of anything. Receipts should be saved for your own personal records, but the IRS doesn't require them. For monetary donations of more than $250, you have to either provide a bank record or written communication from the charity. In most cases, this written communication is a receipt.
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