After a New Jersey couple recently launched a fundraiser for a homeless man last year, donations poured in as hearts were ripped out about this tear jerking story. We see charitable causes all the time that pull the purse strings of our wallet, especially during the holidays. The story of the homeless man and the $400,000 GoFundMe money unraveled in the past few weeks and we learned about the money that completely disappeared. Everyone behind the GoFundMe campaign were playing America, but inevitably they were outed. As we approach the season to be jolly, here are some tips on how not to get scammed when giving to charity.
1) Start With The IRS- Yes, the IRS. The IRS website has a Tax Exempt Organization Search you can use to see if the charity is in fact a legitimate organization. Remember, you want to be asking two very important questions. One, is the organization you are giving to a tax-exempt organization generally falling under the 501 Internal Revenue Code status. Second, is the organization eligible to receive tax deductible charitable contributions. If you can't answer either of those questions, then you probably don't want to donate the money.
2) Do Your Research- Often, charities will underscore that a 'portion of every dollar goes to….' which may make you think that your money is going toward the good cause you expect. However, you can review Form 990 which is basically the tell all about the charity and what is happening with your money. In this form, you can learn everything from how the charity actually allocates the money all the way to the compensation that is being paid to the executives in the charity. This is really important if you are set on your money going to a particular cause.
3) Is it a gift or a donation? - GoFundMe and other various sites have become popular to raise money for certain causes. However, if the GoFundMe page doesn't have tax-exempt status or allow for deductions for charitable contributions, then really you are just making a gift instead of a donation and will not qualify for a tax deduction. Your big question to ask here is whether you are making a gift to a charitable cause or a donation to a legitimate charity. You also want to ask how the person who set up the GoFundMe page is tied to the charity and learn more about the purpose of the money from the charitable raise.
4) Is it a good charity or not?- There are several websites out there that are excellent in ranking charities which can save you some of the headache and heartache you might experience when you donate. Charity Navigator is a great website for ranking charities including offering you trending charities, top ten lists, and tips for donors. Another good one is GuideStar which has up to date 990 forms, deep dive data on charities, and information on community foundations. This kind of extra research can help save you from getting scammed.
5) Get the deduction, but don't donate yet- One of the more interesting strategies is something called donor advised funds. With this type of donation, you use a mutual fund company to donate your funds into today and get a calendar year tax deduction for exactly what you donate. Your funds are invested and continue to grow without tax, and then whenever you choose to donate you can make a grant from your donor advised account. This is a year-end strategy that could work well.
6) Get a receipt….always- Whether you are making cash or non-cash charitable contributions, it is important to get an itemized receipt for your tax returns. This is especially true if you are going to itemize your deductions and fill out form 8283 for your non-cash charitable contributions. You can use www.satruck.com to have some comparable guide for different items that you donate.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
CEO and Founder oXYGen Financial, Inc.
Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.