7 ways to avoid getting scammed by a ‘charity’ during the holidays

A few years ago, a heartbreaking story from New Jersey captured the nation’s attention. A couple, Katelyn McClure, and her boyfriend launched a fundraiser to help a homeless man who claimed he used his last $20 to help McClure when she ran out of gas. The story struck a chord with thousands of people, leading to an overwhelming response on GoFundMe, where donors contributed as much as $400,000. However, this moving story soon unraveled, revealing a shocking scam. The money disappeared and it was revealed that the couple had made up the entire story. Their deception eventually landed them both in prison, where they served a sentence for their fraudulent actions.

This cautionary tale highlights the need for extensive research when donating to charity, especially during the holidays, when people are most likely to give. While countless organizations and individuals are in genuine need of help, there are also those who exploit goodwill for personal gain. To ensure your donations really make a difference, here are some essential tips to avoid scams and protect your generosity.

1. Check charity status with the IRS

Before donating to an organization, first confirm its legitimacy through the IRS’s Tax-Exempt Organization Search tool. This resource will help you check whether the charity is recognized as a tax-exempt entity under Section 501(c) of the Internal Revenue Code.

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Additionally, confirm that the organization is eligible for tax-deductible contributions. These two questions – whether the organization is tax-exempt and whether your donation is deductible – are critical to ensuring your money is going to a legitimate purpose. If the answers to these questions are unclear, you may want to wait before donating.

Check with the tax authorities whether the donation you make is tax deductible. | The American flag flies over the International Revenue Service headquarters in Washington, DC on January 3, 2024 (Photo by J. David Aké/Getty Images)

2. Examine the charity’s financial practices

Charities often advertise with claims such as ‘a portion of every dollar goes to…’, which could indicate that your contribution directly supports their mission. However, a deeper look at the charity’s finances may tell a different story. To investigate this further, consult the organization’s Form 990, a document containing detailed financial information. This form outlines how the charity allocates funds, including the share spent on programs versus administrative costs, and discloses executive compensation. Understanding these details will ensure your donation aligns with your values ​​and expectations.

3. Distinguish between gifts and donations

Crowdfunding platforms like GoFundMe have revolutionized charitable giving, allowing individuals to support personal causes or emergency relief efforts. However, it is essential to recognize that contributions to these campaigns often do not qualify as charitable donations.

If the campaign organizer is not affiliated with a registered tax-exempt organization, your contribution is considered a donation and is not tax deductible. To avoid confusion, always ask how the fundraiser relates to the cause and how the money will be used. This distinction between gifts and charitable donations can help manage expectations and avoid disappointment.

4. Use charity ranking tools

Several online platforms provide valuable insights into the legitimacy and effectiveness of charitable organizations. Charity Navigator is a popular website that evaluates charities based on financial health, accountability and transparency. It also provides resources such as popular charity lists, top ten rankings, and donor tips.

Likewise, GuideStar provides comprehensive information about nonprofits, including access to Form 990s and community foundation data. By using these tools, you can make informed decisions and ensure that your contributions support reputable organizations.

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5. Investigate donor-advised funds

For a more strategic approach to charitable giving, consider using a donor-advised fund (DAF). This method allows you to contribute to a mutual fund, which will give you a tax deduction for the calendar year. Your donation is invested and grows tax-free, giving you the flexibility to distribute grants to charities over time. DAFs are an excellent option for donors who want to maximize their tax benefits while maintaining control over how and when their money is distributed.

6. Always ask for a receipt

Whether you donate cash or non-cash items, always provide a detailed receipt for your records. This step is especially crucial if you plan to itemize deductions on your tax return. For non-cash donations, you may need to complete Form 8283 to claim your deduction. Websites such as satruck.org provide appraisal guides for common items so you can accurately document their fair market value. Keeping thorough records ensures tax compliance and protects you in the event of an audit.

Several online platforms provide valuable insights into the legitimacy and effectiveness of charitable organizations. Charity Navigator is a popular website that evaluates charities based on financial health, accountability and transparency. It also provides resources such as popular charity lists, top ten rankings, and donor tips.

7. Protect yourself during the holidays

Scammers often take advantage of the holidays to take advantage of unsuspecting donors. For example, the US Postal Service never sends unsolicited text messages or emails with tracking links unless you specifically opt in.

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Similarly, FedEx and UPS have resources on their websites to help distinguish legitimate communications from fraudulent communications. If you receive a suspicious message or fall victim to a scam, immediately report it to the FBI’s Internet Crime Complaint Center at www.ic3.gov.

Charitable giving has the potential to transform lives and create lasting positive change. By taking the time to verify the legitimacy of the organizations you support, you can ensure your generosity reaches those who really need it. As you spread kindness this holiday season, stay vigilant against scams to protect yourself and your contributions.

Ted Jenkin is CEO and co-founder of Oxygen Financial and president of Exit Stage Left Advisors.

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