Evaluating Charities

Mosaic / Nov 30, 2015 / Tax Planning

Many of us tend to just send a check to whichever organizations we happen to receive solicitations from.  But if you take some time to consider the impact you wish to have on the world, you will likely find the act of charity to be much more rewarding.  Here is a look at how to be more proactive with our gifts, by evaluating charities before making a donation. 


Why Selectivity Matters

Not all charities get the same results.  It is okay to set some expectations around how well a particular organization is achieving its mission.  One illustration of this point is donating canned goods versus cash to a local food pantry.  Per dollar spent by the donor, donating cash makes a greater impact because the charity can use the funds to purchase what it needs in bulk and at wholesale prices.  If you are donating cans from your cupboard, these were likely paid for at retail prices, and won’t necessarily match the current food needs.   In the long run, organizations that are wasteful with donor’s money or which do not provide quality services may have difficulty maintaining long-term support.  

Decide what criteria matters most to you

What criteria do you use when evaluating charities? It really is up to you.  There are many diverse factors you may consider important, just as the motivations for giving vary widely.  For many donors, the first (and only) factor they consider is whether the charity is focused on a cause they personally care about.   Usually there are many organizations addressing the same need, so it behooves you to go a little deeper and compare how well each one is run and how much impact each one is has on the issues at hand. Other considerations include what geographic location the charity serves, or even whether the charity really needs support at this time. 

How well is the organization run?

When you donate money, it is always a good idea to check on the fiscal health of the recipient organization.  One benefit of checking a charity in advance is that it can help you avoid donating to fraudulent charities.  Charity Navigator, a non-profit that rates the financial efficiency of other charities, encourages donors to remember that any charity you donate to should be in good fiscal health, be accountable & transparent, and provide demonstrable results.  At the most basic level, check to see what percentage of donations are used for administration or fund-raising, as opposed to being spent directly on the stated mission.   You can also ask the organization for their tax filings, and check to see that it is tax-exempt by searching the IRS website’s “Exempt Organizations Select Check.”  A good sign to look for is transparency from the organization.  

How wide is the charity’s impact?

A growing trend in philanthropy is to approach giving as if it were an investment.  One term for this is “effective altruism,” through which donors aim to find ways to make the most of resources in order to provide the greatest amount of assistance possible.  This requires evaluating charities at a much deeper level, going beyond just the financial side of a charity to also judge the way the charity is serving its cause.  Often, the key consideration is about how wide the impact is, in terms of number of people served, how sustainable the effects are, and whether the improvements can be repeated in other areas.  This trend is causing many charities to report their effectiveness in more quantifiable terms.   Givewell.org, a non-profit organization that is at the forefront of effective altruism, encourages donors to ask a charity to provide evidence of the impact their programs are having, both before and after you give. 

Tis the Season

This is the season for giving, not only out of holiday traditions but also because the deadline for receiving tax breaks for your donations is December 31st.  You can donate cash, assets like stocks (especially those with high accrued capital gains), and even the required minimum distributions from IRA accounts.  If you want to receive a tax credit for donations in the current year, but do not have the time to do a properly evaluate the organizations you are considering donating to, you can instead put the money into a donor-advised fund, which will allow you to direct where the money will be sent at a later date but will still qualify for the tax credit within the current year. 

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Topics: Tax Planning