How To Avoid A Holiday Charity Scam?

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How To Avoid A Holiday Charity Scam?

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Know What You Own and What is a Bad Financial Product

November 10, 2019

Over the past few weeks I have covered elderly scams and romance scams, but this one could hit one of your family members over the holidays…

Last year, a New Jersey couple launched a fundraiser for a homeless man.  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 and we learned about the money that completely disappeared.  Everyone behind the GoFundMe campaign was 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: is the organization you are giving to a tax-exempt organization generally falling under the 501 Internal Revenue Code status, and 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.
  • Do your research – Oftentimes, 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.
  • 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 you are really just making a gift instead of a donation and will not qualify for a tax deduction.  The 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.
  • 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 website 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.
  • 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 and get a calendar year tax deduction for exactly what you donate.  Your funds are invested and continue to grow without tax, 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. 
  • 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.

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