Charitable donations can mean big tax deduction—unless you donated to a fraud

Shuyang Balazi | Oct 31, 2020

Donations to charities are a win-win when it comes to filing taxes. You can feel good about helping a cause you care about as well as write off the donations to “qualified organizations” on your taxes at totals up to “50 percent of your adjusted gross income,” according to the Internal Revenue Service. But, what happens when you go to write off such a donation and then come to find out the charity was fraudulent? You’ve given your money to a false entity, haven’t helped a cause, and now cannot write it off on your taxes—a lose-lose situation.

The internet has allowed authentic non-profits to stretch their influence, but it’s also allowed fraudulent schemes to suspiciously dress-up like a real charity. Situations like this can occur at any time, but they often pop-up the most during tragedies. In recent history, Hurricane Katrina spurred so many bogus donation requests that the Justice Department enacted a Hurricane Katrina Fraud Task Force. As a result, over 1,500 people were indicted on charges of fraud. The same sort of disaster relief scams happened following the deadly earthquakes in Japan. Scammers even stole the opportunity to capitalize on tragedies like 9/11, Sandy Hook school shooting, and the Boston bombing.

In other cases, organizations have mishandled generous donations or don’t allocate funding appropriately. A good example of this is Yele, a non-profit founded by singer Wyclef Jean to help his home country of Haiti that was shut down after years of fraud and debt…not the kind of non-profit you want taking your hard-earned money.

Consider these tips to confirm whether a charity is real and making a substantial impact, or fake and stuffing their personal pockets.

Check with the Experts

The AARP recommends to its members to check the name of a charity in questions against credible databases, such as Wise Giving Alliance, operated by the Better Business Bureau. Other helpful sites include GuideStar and Charity Navigator. Additionally, if you want to double confirm that you’ll be able to write-off your donation, check the IRS database of qualified orgs, called the Exempt Organizations Select Check Tool. The ability to accept deductible donations is a key qualifier of a legit charity.

Stamp of Approval

In the modern age there are so many ways to contact people, but when it comes to soliciting donations, most likely mail is matchless. Mail costs more to initiate due to materials and postage, which means that it has more likely been sent by an organization with unfeigned operations. But, just as companies can buy mailing lists with your personal info, scammers can too. If a charity mailing looks authentic, confirm the website’s real by looking at it and check it against the databases listed above.

www.scammed.om

Sincere charities tend to end in .org instead of .com or .net. Watch out for scam sites that look conspicuously like the organization they’re emulating. For example instead of redcross.org the scam site may be redcross.com.

You’ve Got Mail

If your inbox has an unread message claiming to be from an organization and seeking a donation, report it as spam and delete it (unless it’s from an actual organization you’ve donated to previously). If the emails invite you to download any sort of media files, like videos or pictures, click away and delete quickly! The email capitalizing off of important issues and people in need could actually be carrying a virus waiting to infiltrate your computer to steal personal information and more.

Numbers Matter

A charity may indeed be “legitimate,” but won’t spend money in the most effective and efficient ways to help the cause(s) they represent. The Center for Investigative Reporting compiled a list of the 50 worst charities; these charities raised more than $1 billion over the past decade (at the time of reporting) but the vast majority wen to the charities’ paid solicitors and administrators.

Charities Review Council recommends that “charities spend at least 65% of their total annual expenses on their stated programs, and not more than 35% on administration and fundraising combined.” You have the right to ask to see annual reports and documentation that will confirm donations are allocated as you think they are.

Report Abuse

If you think you’ve been swindled by a scam, you’re not alone. And, you can help protect others looking to donate money to valid causes. Report potential scams to the Federal Trade Commission (FTC) at the toll-free number, 1-877-382-4357 or click to the Online Complaint Assistant to report scams and rip-offs. You can also report questionable emails and website to the FBI's Internet Crime Complaint Center.

Resources

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2024 Advisor Websites.

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