Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
Charitable giving is one of the many ways Americans can help those who find themselves in less fortunate positions this year. Thirty-five percent of Americans plan on giving back by donating to charities on Giving Tuesday this year; if you’re among them, you’ll want your dollars to make the biggest impact possible.
These tips can help you navigate your giving on Giving Tuesday—or any day.
How to Choose a Nonprofit for Your Donation
Kevin Scally, chief relationship officer of Charity Navigator, a nonprofit dedicated to evaluating other nonprofits, says “donors should give with their hearts, but also give with their heads.” He recommends that you find a nonprofit that aligns with your passion, whether it’s equality or education, and then evaluate how it’ll use your donation to support that passion.
Scally gives the broad example of medical charities; they could be supporting the industry by funding research, or by engaging in advocacy or education efforts.
You should ensure the nonprofit you choose is a legitimate nonprofit registered with the IRS. You can do this research through the IRS Tax Exempt Organization search, which keeps a running record of organizations eligible to receive tax-deductible charitable contributions. Scally adds that nonprofits usually disclose this information, and tools Charity Navigator can also help track it down.
Another important consideration: How do you know your donation is being used efficiently and effectively? Will your money directly impact the cause?
This usually comes down to a program-expense ratio. This metric measures the relationship between program expenses for direct mission-related work versus the organization’s total expenses, like marketing or overhead costs.
Scally says the go-to threshold for an organization’s program-expense ratio is usually 70%, meaning that 70% goes directly toward the cause and not back into the organization. This is one of the performance metrics Charity Navigator uses to rate nonprofits.
Resources to Help You Donate Wisely
You might already have a nonprofit organization in mind to donate to—and if so, great! If you don’t, however, sifting through thousands of organizations online can be overwhelming.
Searching online charity databases can simplify this process.
Charity Navigator, for example, evaluates charities based on their financial health, accountability and transparency. The organization evaluates 501(c)(3) public charities that have generated at least $1 million in revenue for two consecutive years, among other criteria, and will rank a charity on a scale of four stars.
Users can search for a charity on Charity Navigator by name or browse by categories like animal charities, health, education, religion, research and public policy. It also curates “hot topic” lists for charities relevant to current events, like its Ukrainian relief and recovery and Hurricane Ian response nonprofit lists.
Through Charity Navigator, users can donate directly to nonprofits of their choice. None of the fees donated via the platform go to Charity Navigator, but there are processing fees imposed by the third-party services used to process and disburse each donation.
GuideStar is another resource that can be used to find information about nonprofits. The organization doesn’t evaluate nonprofits, but provides what it describes as unbiased information to help donors make educated decisions about which nonprofits to donate to.
GuideStar provides basic information like financials and legitimacy, as well as the organization’s strategies and measures of progress toward its cause. A few initial searches are free, but afterwards you’ll be prompted to make a free account to access more information on thousands of nonprofits.
Should You Contribute to Crowdfunding?
Crowdfunding platforms like GoFundMe are often a place Americans turn to when disaster strikes, whether it’s raising money to recover a home destroyed by a natural disaster or trying to cover a family member’s medical bills.
Crowdfunding also became a lifeline for many during the pandemic: Campaigns on GoFundMe alone raised over half a billion dollars for frontline workers, small businesses, support organizations and more within the first five months of the start of the Covid pandemic.
You might come across these campaigns on social media or in the news and feel compelled to donate. But you should keep in mind that some of these platforms are for-profit or will charge a fee on top of donations, meaning not all of your donation will go directly to the person running the campaign.
GoFundMe keeps a transaction fee of 2.9% plus $0.30 per donation from individuals or businesses who start a campaign. Charities who set up fundraising campaigns on the platform are charged 2.2% plus $0.30 per donation. If an individual raised $500 from five donors, they would receive $484 after fees, according to a calculator on GoFundMe’s website.
That’s not to say you shouldn’t contribute to crowdfunding campaigns. As the Wall Street Journal pointed out in the first year of the pandemic, some people relied on these campaigns to supplement their income or help pay their rent.
If you donate to a crowdsourcing campaign, be aware there’s no way of verifying that the recipient will actually use the money for what they said they would.
One couple raised over $400,000 in 2019, claiming it would go to a homeless man. But they spent most of the money on gambling, vacations, a luxury car and more for themselves).
People in need may also share their stories on social media platforms, asking for money through apps like Cash App or Venmo. This type of contribution comes with risk if you can’t verify the person or their story. Proceed with caution.
Donating to nonprofits can help causes that consumers are interested in supporting. But small businesses are still recovering from the pandemic, and could be another potential place to support with your money this holiday season.
Shopping local for your holiday needs can help support these small businesses. Small Business Saturday takes place on November 26 this year.
You can show your support by purchasing holiday gifts from a local small business, or buying meals from local restaurants instead of turning to big brands for your spending.
Don’t Forget the Tax Benefits
You may even receive tax benefits from making charitable donations. Deducting charitable contributions can lower your overall tax bill.
Generally, you can claim a charitable donation as a deduction on your taxes only if you itemize your deductions. That means you’ll have to exceed the following standard deduction amounts for 2022 to qualify for itemizing:
- $12,950 for single and married filing separate taxpayers
- $19,400 for head of household taxpayers
- $25,900 for married filing jointly or qualifying widow(er) taxpayers
Only donations to qualified charities, such as nonprofit, religious, charity or educational groups, are eligible for itemized deductions (donations to a GoFundMe campaign aren’t tax deductible).
If you’re hoping to reap tax benefits, check whether an organization is tax-exempt by searching the IRS Tax Exempt Organization Search Tool.
Generally, you can deduct up to 20% of your adjusted gross income as charitable contributions each year. Be sure to keep receipts or letters confirming your donations as part of your tax records.
Read more: Tips For Maximizing Tax Deductible Donations