The holiday season is a time of giving, and what better way to give than with a donation to a non-profit organization or charity that holds special meaning to you.
Barb Wollan, Iowa State University (ISU) Extension family finance specialist, said charitable giving is on the rise again in the United States after a couple years of decreased giving. “Since giving is a strong American tradition, a rebound in giving is good news, and we can hope the upward trend continues,” she said.
But how do you know if the group you’ve found or want to support is legitimate? That’s the first step to take before writing a check. Wollan and ISU Extension family financial management specialist Suzanne Bartholomae said to search for a reputable organization with low administrative costs to ensure your donation provides the “most possible value.”
For local organizations, request annual reports, visit their websites and ask around about their reputation and projects. With large national organizations, research their finances, specifically how much is spent on the actual program versus administrative and fundraising expenses. Much of this information can be found at the following websites: www.bbb.org/us/charity, www.charitynavigator.org and www.charitywatch.org.
“Local charities often are not listed on these national databases, but that doesn’t mean we shouldn’t give to those organizations; in fact, they often are some of the most valuable and satisfying gifts people give,” she said. “But if you want to be able to deduct the gift on your taxes, you need to make sure it’s a 501(c)(3) organization.”
Bartholomae said there is no set amount for “appropriate” donations. “Charitable organizations welcome gifts of all amounts. Reputable charities recognize that a gift of $5 from one person may be as significant as a gift of $500 from another person,” she said. “Naturally, charities are thrilled with larger gifts, but they also know that when they receive small gifts from many people, that adds up the same as one large gift.”
At the holidays, people should also take into account all of the additional spending that will be done for gifts, tips for those providing services and any extra bills. “I recommend that people consider their giving like they consider all their spending — what are your priorities?” Bartholomae said.
People who itemize deductions on their tax return can deduct their contributions to 501(c)(3) organizations. This reduces their taxable income, which then reduces their tax bill. If a person is in the 15 percent tax bracket and gives $1,000 in charitable contributions during the year, then their taxes will be reduced by $150, Bartholomae said.
“For most households, however, the tax benefit is not the main reason they make charitable gifts; instead, the tax benefit is really just an added bonus," she said. "Knowing that they will be able to deduct their contribution, however, can lead people to increase the size of a gift they were planning to make, since the tax deduction effectively reduces the cost of the gift.”
If the donation will be claimed at tax time, keep receipts. “This is especially important for gifts made in cash," Bartholomae said.
In addition, Bartholomae recommended people plug charitable giving into their budget year-round, rather than with year-end gifts.
“For people with a steady monthly income, this makes more sense, rather than responding to the year-end appeals often sent by charitable groups," she said.
“I recommend that it be considered as a part of their overall decisions about spending — as a family considers how much to spend on housing, clothing, entertainment and so forth. They can also decide how much they want to spend on charitable giving,” she added. “Occasionally people may be in a generous mood, responding to a stream of requests like the requests that are common during the holiday season, and then regret it later. Sometimes the regrets come because they no longer have funds available to give when a request comes from an organization they really care about; other times families end up struggling to meet their basic needs.”
For more information, visit www.extension.iastate.edu/finances.