Financial Matters

The Gift of Giving

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As the holidays near many think of giving not only to friends and family but also to charitable organizations. Thoughts often turn to those in need and how a donation might help those less fortunate. Donations to charitable organizations are typically higher during the last months of the year as a combination of generosity and favorable tax treatment motivated people to give. Now changes to the tax law impact whether donations will be tax deductible in 2018 but hopefully that will not dissuade taxpayers from donating.

While the Tax Cut and Jobs Act of 2017 changed the rules for whether donations would be tax deductible, it did not change the rules for becoming a charitable organization. Under section 501(c)(3) of the Internal Revenue Code and organization an organization “must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”

Most people have never read that section of the tax code, but they are familiar with organizations that fit within this law. According to the National Center for Charitable Statistics there are over 1.5 million 501(c)(3) organizations registered. This includes public charities like The United Way and the American Cancer Society, private foundations like the Bill and Melinda Gates Foundation and the Ford Foundation, and other organizations such as chambers of commerce and fraternal organizations.

For many years the preferred term was “charity” but that went out of favor in the 1990s, replaced with “non-profit”. The name “non-profit” comes under fire since it seems to conceal the vast sums collected and distributed each year by organizations. Many of these organizations have operating budgets much larger than for-profit companies. In fact, the top 10 public charities all have revenues exceeding one billion dollars according to a ranking by Forbes and the top salary at the United Way exceeds $1,000,000.

Non-profits come in all sizes from small locals to national and multi-national operations. Personal preference will guide your donation to local or national, large or small, religious or secular? The mission of the organization should be a key determinant of which organization receives your donation, but it should not be the only factor. Before writing that check or clicking on a website link donors should ask some key questions?

  1. How much of the donation goes to providing services and how much for administration?

An organization needs to allocate money for staff, building and program and fundraising expenses but the majority of donations should be going to fund the mission of the organization. Watchdog services like Charity Navigator and Charity Watch track this spending and grade organizations by efficiency.

Another source of information is the non-profit’s website although specific numbers are hard to find. A non-profit with revenues exceeding $50,000 are required to file an IRS Form 990. This will give detailed information about the source of funding and use of funds.

  1. What are the primary funding sources?

Does the non-profit rely on an endowment, grant funding or individual donations? Some organizations have sums of money sitting in an endowment. This endowment will generate interest income that can be a source of revenue for an organization. Grant funding comes and goes and must be secured periodically. Grant sources can be government or private sources and availability can change dramatically depending on the political or economic environment. Individual donations are typically secured through fundraising efforts that can take time away from the mission.

  1. How effective are the programs?

Again, the website may offer answers. Also, if an organization is local ask for a site visit and talk with the director and/or officers. They are often eager to woo potential donors and want to share their passion for the cause.

As 2018 comes to a close it is a great time to express thanks and gratitude for your prosperity and give to an organization that peaks your interest. With so many categories to choose from, animal welfare, cancer, child protection/welfare, environmental, international relief, mental health, veterans, police and firefighters, and religious, a monetary donation will help a cause move forward. It might not help your bottom line when it comes to tax time, but it will hopefully add to the warmth of the season and help the greater community.

Asalyn Coachman is a Registered Representative of and offers Securities through The O.N. Equity Sales Company, Member FINRA/SIPC, 39395 W Twelve Mile Rd., Ste 102 Farmington Hills, MI 48331 (248) 482-3600.  Investment Advisory Services offered through O.N. Investment Management Company.  Financial Architects, Inc. is not a subsidiary or affiliate of The O.N. Equity Sales Company or O.N. Investment Management Company.



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