It’s very gratifying to donate to a worthy charity and know you are making a difference in the world. But whenever you make a gift, you also want to be sure that your money will be used wisely. The California Society of CPAs recommends asking these questions before you give.
•Who are you? The organization may send heartfelt letters about important causes, but be sure you know exactly what kinds of programs it has in place before sending your check. If you’re planning to support a group with a name that sounds familiar, confirm also that you’ve got the right organization, since some names may sound alike. Research done online or in the library can give you the facts you need.
•Can I see your financial statements? The group should be willing to share its Form 990, a tax return filed with the Internal Revenue Service, for the three most recent years. If the organization will not do so or does not have this information, that should raise some red flags about the charity.
•How do you spend your money? Among other data, the Form 990 will show program expenses, or how the group spends the money it collects. Check to see how much of your donation will actually go to the cause you support and how much will be spent on salaries and other organizational costs. The charity should be spending at least 75 percent of its budget on its charitable programs. Other expenses-such as fundraising and administrative costs-should not be higher than 25 percent.
•How do I know you make a difference? An organization may work diligently to effect change, but that does not guarantee that its efforts are effective. You will want some reassurance that there is a legitimate need for the programs or services being given and that they are actually being used.
If the organization provides after-school programs for inner-city children, for example, how many children are involved on a regular basis? If that number has risen in recent years, has the charity been able to adjust to the new demand? If the number has declined, can the charity explain why?
It should be clear that the group has responded to changing circumstances and enhanced its programs over time.
•Am I eligible for a deduction? You should be able to deduct your donation if it is made to an organization that has been given tax-exempt status under Section 501(c)(3) of the Internal Revenue Code.
If you donate cash, you can deduct the amount of the gift from your taxable income in the tax year in which the donation is made. Retain a cancelled check or receipt from the charity as proof of your donation. (Get a written confirmation from the charity for any cash donations of more than $250, even if you have a canceled check for the gift.)
You can also qualify for a deduction of the fair market value of non-cash donations, including clothing and household items in good used condition.
The IRS does note that the current value of most used items is well below what they cost new, so be realistic in your estimates of value and get a receipt from the organization stating the value of what you’ve given.
Keep in mind, too, that you generally will need a qualified appraisal if you are taking a deduction for donated property worth more than $5,000.
Your CPA can help
Charity Navigator and the Better Business Bureau Wise Giving Alliance are among the groups that evaluate charitable groups and provide information on making wise giving decisions. For personalized advice about your charitable giving plans — or any aspect of your financial situation — be sure to turn to your local CPA. He or she has the expertise to address all your financial concerns.
•Copyright 2011 American Institute of Certified Public Accountants. This column is a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program.