Checking Up on Charities

Charity Checkups

December 1, 2020, #GivingTuesday, kicks off the charitable season, when many focus on their holiday and end-of-year giving. This year, due to the CARES Act, even if you do not itemize, you get a $300 charitable deduction. If you do itemize this year, your cash charitable deductions can run up to 100% of your adjusted gross income (vs. 60% previously). In both cases, donations must be made to qualified charities. For more details, see https://www.irs.gov/newsroom/how-the-cares-act-changes-deducting-charitable-contributions.

If you are over 70 1/2, remember you can effectively get a charitable deduction by sending the donation directly from your IRA. The distribution won’t be included in your taxable income.

Where Does the Money Go?

Now that you’re thinking charitably, have you ever wondered whether the charities you support are spending funds in the best way? How much should a charity spend on those it serves, and how much should it spend on itself?

The 2016 firing of the top two executives at the Wounded Warrior Project (WWP) illustrates the question. Several years prior, a client expressed interest in supporting a veteran-based organization in her will. When asked if she had a specific one in mind, she thought for a second and said, “Something like the Wounded Warrior Project (WWP).” When we looked up WWP on Charity Navigator (www.charitynavigator.org), nearly 40 percent of revenues were spent on salaries, advertising and fundraising.

As it turns out, the executives were terminated for wasteful spending on luxurious conferences, staff meetings, and conventions.

When I served on the local United Way’s audit committee, the range of administrative and fundraising expenses for most charities we examined was less than 10%.

Obviously in the client’s case, WWP’s advertising worked. It was top of mind for her, unprompted – an advertiser’s dream outcome. Any charity would have loved to be in that coveted spot. Once we saw the expense numbers, though, she decided to choose a different one.

Should a Charity Run Like a Business?

However, some argue that charity advertising dollars, executive salaries, and staff perks, if spent wisely, can do the greatest good. After all, if 60% of $225 million is being spent on helping wounded veterans, that’s a lot of good being done, even if the other 40% is going back to the staff, advertising agencies, hotels, resorts, and airlines.

Perhaps business-minded donors don’t mind charities being run like a business – wining and dining potential clients (donors), and rewarding its highest producers (fundraisers) with lavish trips. Perhaps those same donors eschew executive directors who take sparse salaries and employ minimal marketing staff.

Donate in Line with Your Values

If you are a potential donor, the important point is to know your values in this regard. Ask the questions or do the research to make sure your favorite charity is a match in all of these areas: their message, their mission, and their methods of achieving both.

Need help? Contact a local community foundation (www.cof.org), check out Charity Navigator, or ask your favorite financial planner. You can also see Chapter 4 of The Mindful Money Mentality: How To Find Balance in Your Financial Future.

What’s your take on charity administrative expenses? Leave a comment here.

Holly Donaldson

Holly P. Donaldson, CFP® writes and consults on the psychology of money. Her fee-only, product-free financial planning practice focuses on increasing financial self-efficacy for those seeking a financial navigator to help them make good decisions. She is the author of The Mindful Money Mentality: How to Find Balance in Your Financial Future (Porchview Publishing, 2013) and publisher of the award-winning monthly e-letter, "The View From the Porch." With a fully virtual practice in Seminole, Florida, she primarily serves clients located in the Tampa, St. Petersburg, and Clearwater areas. Holly will also work with clients who are a good fit located elsewhere in the United States.

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