The Ten Biggest Mistakes People Make When They Donate To A Charity.
As our work with the SE Asia Foundation continues to mature, I’m often asked about how one can know if their charitable donations are doing all the good they expect. Usually, I just answer such inquiries with a top-of-the-head response. But recently a friend wanted to delve more deeply into that question so I decided I’d better put my thoughts together more concisely. So, here you go: Ten serious mistakes to avoid when giving, followed by one positive suggestion.
Mistake #1: Failing to check the credentials of the receiving organization
We all get bombarded with requests for donations. Sometimes we know those organizations pretty well; sometimes we don’t. Sometimes we only think we know them. That’s where checking credentials comes in to the picture. There are reputable resources for this:
- Is this organization a registered corporation and/or charity in good standing in your state? That’s easy to check here in Washington State through our Secretary of State’s web site.
- Is this a registered charity with the Internal Revenue Service? That, too, is easy to check here. For our organization, search for EIN number 462929184, then select SE Asia Foundation.
Mistake #2: Not aligning your giving with your personal goals
What you truly care about is your own personal decision. What really matters is whether or not your money truly impacts those causes you personally care about. So, be clear in your own mind about what matters most to you. Is it a religious passion? Is it a political stance? Is it about health care? Is it about climate change? Is it about poverty alleviation? Is it local? Is it international? Whatever it is, just be clear about that.
The bottom line here: Clarity of purpose will ease your decision-making challenges.
Mistake #3: Waiting until the end of the year to donate
31% of all charitable giving in America happens in December. And a full 12% happens in just the last three days of that month! Meanwhile, the work of the charities you love and support goes on year-round. Perhaps your giving could be more effective if it were distributed throughout the year instead of landing all at once. Same money. Different pattern.
One way to make this happen is with a monthly giving commitment. Personally, I do this with automatic, monthly donations through my Visa Card. Quite frankly, I hardly even notice the money went out. Never miss it at all. One way we encourage that at the SE Asia Foundation is
to invite donors to join our Circle of Hope Society.
Mistake #4: Failing to check operating expense ratios
It takes money to run a charity. No doubt about it. Those necessary costs for administration, overhead, and fundraising cannot be avoided. But how much of this is reasonable? Some people think 10% should do the job. Others use the 20% rule of thumb for guidance. Personally, I’ve seen “charities” with egregiously high ratios – some more than 50%. The fact is, many people never even check. This is something you should know. In fact, you might occasionally find an organization that can assure you that 100% of your donation will go directly to support your cause because their operating costs are covered by other means. We’ve kept that pledge at the SE Asia Foundation for over 17 years now.
Mistake #5: Responding emotionally to emotional pleas
We all see these pleas on TV. Skinny kids with boated bellies. Sad faced, starving dogs. Kids with tragic cleft lips and palates. Mournful music playing. Pitiful conditions for sure. How can we not help? How can we not help right now? Seems so compelling, doesn’t it?
Please. Stop and think for a bit. Sleep on it. Is this cause really consistent with your goals in #2 above? If it truly is, then give. If not, take a pass on that one.
Mistake #6: Spreading your generosity too thin
Sometimes it seems easier to give $15 or $20 (or some other small amount) to an organization and avoid having to say no to them. But, think about it for a moment. What impact will that small amount of money have on their mission? Sure, I know – “every little bit helps”. Of course it does. Then again, what is the true impact of that money? If your personal financial situation restricts you to small amounts, give a little every month. (See #3 above.)
If you’ve been spreading your donations too thin, would you have a more significant impact on a cause near and dear to your heart by combining all those small donations into one or two larger, more impactful donations? It’s worth thinking about.
Mistake #7: Donating to receive a prize or a gift
How many times have we seen it? “Make your donation today and we’ll send you a free insulated coffee mug – or a set of packing cubes for your next trip” – or something else appealing. Here’s another one to stop and think about. What is that “gift” costing the charity? Is that really the best use for their money? How much are they spending on fundraising? Often this “gift”, if it’s something you really want, is readily available to you for a few bucks at a local store.
Mistake #8: Failing to take advantage of donating appreciated stock
Here’s one that is sometimes overlooked. If you are contemplating a “major” donation of, say, a few thousand dollars or more, there’s a significant tax advantage to donating appreciated stock instead of cash. Here’s an example:
You own 100 shares of STK that you bought many years ago for $10 per share. Today it’s trading at $100 per share. You’re up $9,000 with STK. Nice gain, but taxable. Provided you itemize deductions, when you donate that stock directly to your favorite charity, you get a $10,000 charitable deduction – and you are not taxed on the $9,000 gain in the value of those shares. (Important tip: Don’t sell the stock and donate the cash. Make sure you actually transfer the stock to the charity.)
Mistake #9: Failing to make a Qualified Charitable Donation (QFD) from your IRA
This is an opportunity for those who do not itemize deductions to lower their Adjusted Gross Income (AGI) when taking their Required Minimum Distribution (RMD). Consult your tax advisor to see if this tactic can work to your benefit.
Mistake #10: Not taking advantage of your $300 tax free allowance
For those who do not itemize deductions, current tax law still allows up to a $300 above-the-line tax deduction. What this means is that your donation reduces your adjusted gross income, so that amount is never taxed.
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That’s it. Avoid those ten mistakes and you’ll be more comfortable that your charitable donations are having the effect you intended.
Oh, yeah. I promised one positive suggestion. Okay, here it is:
- Your giving now has clear intent.
- Your giving has a meaningful impact on the causes truly important to you.
- You can enjoy the satisfaction of knowing you are making the world a better place.
For further information contact:
Bill Taylor, Founder
SE Asia Foundation