With the recent tornado in Oklahoma we are reminded of the importance of charitable giving. In fact, since the tornado, over $15 million has been donated to the American Red Cross. According to the Giving USA Foundation, individuals gave over $217 billion dollars to charitable causes in 2011, a 3.9% increase over 2010. As charitable giving increases, I want to make sure you know not only how to maximize your charitable contributions from a tax standpoint (see my post about using the donor advised fund), but also that you are informed about the effectiveness of the charities you choose.
There are a couple resources available now to help understand how effective a charity is with the money you donate. Charity Navigator has been around since 2001 and now assesses over 6,000 charities. Its goal is to provide one overall rating based on two areas of effectiveness: 1) their financial health and 2) their transparency and accountability. For example, the American Red Cross, a popular one at this moment, shows a total score at 59.64 out of 70 as of fiscal year end in June of 2011.
Another website, CharityWatch.org, also rates different charities’ effectiveness. While they rate only 600 or so of the largest charities, they tend to dig much deeper into the inner workings of the organization than Charity Navigator. They study the individual finances of every charity to give a clear picture on what the money is actually being used for. Instead of taking the information at given at face value, they try to determine if the donors’ objectives are actually being met. Because their analysis is more in-depth, Charity Watch charges $50/year for access to their Charity Rating Guide, which provides financial data and a rating from “A+” to “F” for each charity.
We all want to make sure the money we give generously is used effectively. Whether you’re giving funds to aid with large natural disasters or donating to your local food bank, donations are needed and greatly appreciated. Now, in addition to maximizing the tax effectiveness of your charitable donations through donor advised funds, these tools can help you choose organizations that will help your dollar have maximum impact.