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There’s more to understanding how to donate money effectively than simply writing a check. Understanding the different ways to donate, the financial and emotional benefits of donating, and how to vet a charity before you open your wallet can help you make sure your contribution has the most impact.
1. Donate Money by Mail
Writing a check and making a donation by mail is still a perfectly legitimate way to support your charity of choice, especially if you want to limit how often you share your credit card information. Check donations also help charitable organizations avoid credit card and other third-party processing fees.
2. Donate Money Online
Donating online by credit card is a quick and easy way to give money to charity. You’ll generally receive a printable or emailed receipt for your donation.
Most online donations are of the crowd-funding variety — a large number of people making small donations. Larger donations are usually made through other avenues like a donor-advised fund or charitable gift annuity.
One advantage to donating online is the ability to spread your donations out across multiple causes. But make sure you research your chosen charity before you donate. (Continue reading to learn more about donating safely to charity or jump to that section now.)
Consider making online donations directly to a charity without going through a third-party platform. Donating directly helps ensure that your entire donation (minus any credit card processing fees) supports the charity. Third-party platforms, which allow donors to contribute to multiple causes, usually charge charities an additional transaction fee.
And here’s a quick note of caution: Spammy emails that you never signed up to receive rarely come from legitimate charities. It’s better to take an active role in researching a charity to donate to instead of responding to aggressive marketing.
In any case, be sure to read the privacy policies whenever you donate online to learn how your personal data will be used. In some cases, you’ll be able to opt out of third-party data sharing and even opt out of being added to an email list if you choose.
3. Donate Your Car, but With Caution
If you’re attached to your old car, donating it to charity instead of trading it in or scrapping it might make it a little easier to part with. When you donate to the right charity, you’ll have the peace of mind that comes with knowing that although your car may no longer be in your garage, it’s supporting a good cause.
But there are some serious caveats when it comes to donating your car — not every organization that accepts car donations is on the up-and-up. False advertising, fraud, and self-dealing are some of the issues that attorneys general in multiple U.S. states continue to investigate when it comes to “cars for charity” businesses.
- Don't respond to advertising, email spam or junk mail soliciting your car donation. Scammers are more likely to use these methods to prompt an impulsive, emotional response from you.
- Research to make sure the organization is a qualified charity. It should have a 501(c)(3) non-profit status with the IRS. If it doesn't, your donation is not tax-deductible.
- You'll have to check off a few boxes to make certain your donation is tax-deductible. Read the IRS's Guide to Vehicle Donation to learn more.
4. Donate Through a Donor-Advised Fund
Often called a DAF, a donor-advised fund is a charitable giving account that you open with a sponsoring organization, which then acts as custodian of the account. Although once your assets are in the account and the sponsoring organization has control of them, you’re able to recommend how grants are distributed.
You can open a donor-advised fund with as little as $5,000 in assets. DAFs have grown in popularity because of the significant tax advantages they offer donors. Some people also appreciate them because they allow for anonymous donations.
As with most charitable giving, you should do your research or speak to your financial advisor before opening a donor-advised fund. The IRS has DAFs on their radar as a potential source of abuse through questionable deductions and tax shelters.
5. Give a Charitable Gift Annuity
Charitable gift annuities are another form of planned giving. They benefit both the charity and the donor. They’re best suited to those who have a sizable donation to make.
- You sign a charitable annuity agreement with a 501(c)(3) non-profit organization that accepts charitable gift annuities.
- You make a donation of $10,000 or more.
- The charity invests the donation.
- You receive guaranteed scheduled payments from the annuity for life.
- Upon your death, the charity receives the balance of the invested funds.
The year you establish the charitable gift annuity, you’ll be eligible to claim a partial tax deduction. The IRS views only part of the annuity as an immediate donation, while the rest is considered an investment. But the fixed payments you receive through the annuity may be taxed as income depending on federal and state requirements. The payment amount is also set when the gift annuity is established and doesn’t appreciate over time.
You can search for organizations that accept charitable gift annuities at the American Council on Gift Annuities (ACGA). As with any large investment, it’s wise to consult your financial advisor before you sign on the dotted line.
6. Donate Appreciated Securities
Donating long-term (held for more than one year) appreciated securities like stocks, bonds and mutual funds directly to charity is another popular way to make an impact while minimizing your tax liability.
There are some immediate benefits to donating appreciated securities. The first is that you’ll be able to claim a tax deduction for the full market value of your donation. The second is that you’ll potentially avoid paying capital gains tax. Because of the tax benefits, donating stocks, bonds and mutual funds directly is more fiscally savvy than cashing in those assets and donating the proceeds.
7. Establish a Private Family Foundation
If your goal is to establish a philanthropic legacy for your family, setting up a private family foundation may be an option for you. This form of planned giving is funded by your family’s assets. Your family usually runs the foundation, and family members participate in awarding charitable grants.
Creating and administering a private family foundation is complicated, so you’ll likely need the help of an attorney or CPA to not only set up the foundation but also help with its ongoing administration. If the set-up and maintenance of a private family foundation seem daunting, consider a donor-advised fund instead.
Financial Benefits of Donating Money
Being charitable can have financial perks that range from small to significant. Here are some of the primary financial benefits of donating money:
Income Tax Deductions
In many cases, your charitable donations are tax-deductible. Just remember that you’ll have to itemize to get the tax break. If you do your own taxes and your donation was on the smaller side, make sure you compare your itemized deduction against the standard deduction to see which is more advantageous.
Avoid Capital Gains Tax
When you make a sizable profit on stocks, it may be subject to capital gains tax. But if you donate that appreciated stock — or other appreciated assets — you’ll generally avoid paying capital gains tax. The charitable organization won’t be taxed, either.
Reduce Your Taxable Estate
If your estate is substantial enough that it is subject to estate tax, charitable giving can reduce your tax burden.
May Generate Regular Income
Some charitable giving pathways will also generate regular income for you. Donating through a charitable gift annuity, for instance, establishes a fixed payment that you’ll receive for life.
If maximizing your tax advantage or generating income is important to you, it’s always wise to consult a financial advisor before you decide which charitable giving option is right for you.
Emotional and Physical Benefits of Giving to Charity
The tax benefits of donating money are nice to have, but the real benefits may lie in the way giving makes you feel. According to research, that warm glow you get from helping others is good for your health.
Makes You Happier
A 2017 report funded by the Women’s Philanthropy Institute revealed that people who donate to charity have greater life satisfaction than people who don’t. And that finding was true for all participants regardless of gender or marital status. A 2020 study published in the Journal of Personality and Social Psychology also concluded that spending money on others — called prosocial spending — promotes happiness.
May Help You Live Longer
The findings of a University of Michigan study suggest that for older adults, people who help others reduce their risk of dying by almost 60 percent compared to their peers who don’t make any efforts to lend help. The research applied to helping others in practical ways (like donating money) as well as giving more intangible things (like emotional support) to others.
Gives Your Brain a Satisfaction Boost
Acts of altruism, regardless of how small or large they are, contribute to feelings of satisfaction and fulfillment by activating your brain’s mesolimbic pathway, causing the release of reward chemicals like dopamine, endorphins and oxytocin throughout your body. That’s one reason why giving is so gratifying!
May Lower Your Blood Pressure
Regularly spending money to help others may lower your blood pressure. A small study in older adults showed that prosocial spending for a period of two to three weeks lowered both the systolic and diastolic blood pressure of the study participants about as much as other blood pressure interventions like exercise or medication.
Types of Charities to Donate Money To
You may already know which charities are closest to your heart. But if you haven’t chosen a charity, deciding which one to donate to can be a challenge. Let’s explore some options.
Culture and the Arts
If preserving our cultural and artistic heritage is important to you, consider donating to any of these types of charities:
- Performance art venues and organizations
- Museums and cultural centers
- Art galleries
- Historical societies
Donating to education charities that promote learning is one sure way to have an impact on the future. These types of organizations are always in need of support:
- Private and public schools
- Scholarship programs and financial aid services
- Literacy programs
- Education policy and reform agencies
- Youth and adult education programs
- Special education
Conservation and the Environment
These types of charities champion conservation, environmental research and preserving and protecting our natural surroundings:
- Conservation agencies and programs
- Environmental defense agencies
- Nature centers
- Botanical gardens
Human and Civil Rights
There are many local, national and international nonprofits that support human and civil rights in a multitude of ways. Some examples include:
- Food banks and pantries
- Homeless services
- Shelter and crisis services
- Human and civil rights advocacy groups
- Election reform and government watchdog agencies
- Racial, ethnic and cultural advocacy and support groups
That’s just a shortlist of the types of charities and causes that rely on financial support from donors. Other charities to consider giving your support to include those that serve local community development, health and human services, animal welfare and religious organizations.
Tips for Choosing a Meaningful Charity
Choosing a charity to donate money to is a personal decision. Start by considering what causes resonate with you. Once you’ve decided what type of charity to support (arts, environment, human rights, etc.), these helpful resources will help you find a nonprofit where your donation dollars will do the most good.
How To Find a Charity
Fortunately, online resources have made it easier than ever to find a charity that supports causes you care about.
- Better Business Bureau (BBB) Wise Giving Alliance: The BBB produces charity reports based on 20 Standards for Charity Accountability.
- Center of High Impact Philanthropy: The center releases an annual High Impact Giving Guide to help connect potential donors with causes.
- Charity Navigator: This nonprofit organization advocates for reporting transparency and provides ratings for over 160,000 charities. It also maintains an advisory system that warns of charities with potentially questionable business practices.
- GuideStar: This database operated by the nonprofit Candid provides profiles on 1.8 million IRS-recognized tax-exempt organizations.
- CharityWatch: Another respected nonprofit charity watchdog that monitors the efficiency, accountability and governance of nonprofit organizations in support of informed charitable giving.
How To Donate Money Safely
Not every organization with the word “charity” attached to it is actually doing good in the world. These tips will help you ensure the charity you’re considering is on the up-and-up and avoid fraudulent charities and scams.
How To Vet a Charity Before You Donate
Doing your due diligence before you donate will help ensure your contribution makes the biggest impact. The charity resources above are an excellent place to start the evaluation process. But what else should you be aware of when you vet a charity? Here are some considerations:
- Make sure the charity is an actual 501(c)(3) nonprofit organization. If it isn't, your donation will not be tax-deductible.
- Demand accountability and transparency. Charities should make detailed information about their financials and governance easily accessible.
- Look for a charity that evaluates its own effectiveness. A charity should set benchmarks and continually monitor the successes and failures of its programs. You can often find this information on the charity's website and in its annual report.
5 Charity Red Flags to Watch For
Not every so-called charity is legitimate or even well-meaning. It’s wise to be cautious of potential scams and fraud. Keep an eye out for these red flags.
- Unsolicited gifts: Yes, there are legitimate charities that send items like mailing labels as gifts. But it's illegal for an organization to send you something you didn't ask for and then demand payment. Also, keep in mind that those labels, keychains and other trinkets mean higher fundraising costs for the organization, which may mean less money spent on supporting the cause itself.
- Sob stories without substance: Yes, storytelling is an important part of fundraising. But question emotional appeals that aren't backed by transparency about the organization's goals, accomplishments, governance, and accountability standards.
- Aggressive solicitation tactics: Walk away from any charity that solicits an on-the-spot donation. Legitimate charities grant potential donors time to learn more about their operation and mission.
- Copycat names: Some scam charities operate under a name that closely resembles that of a well-known and respected charity. Beware of imitators.
- Requests for cash payments or funds transfers: No legitimate charity will require a cash donation or ask for an electronic funds transfer or gift card.
Make Your Contributions Count
Donating money to a charity that upholds a mission you believe in can be rewarding in many ways, from tax benefits to simply feeling good about doing good. Taking the time to find a charity that operates effectively can help ensure that your altruism has the most impact.
4 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- Aknin, L. B., Dunn, E. W., Proulx, J., Lok, I., & Norton, M. I. (2020). Does spending money on others promote happiness? Retrieved from: https://doi.org/10.1037/pspa0000191
- Whilans, A., Dunn, E., Sandstrom, G., Dickerson, S., Madden, K. (2016, February 11). Is spending money on others good for your heart? Retrieved from: https://pubmed.ncbi.nlm.nih.gov/26867038/
- Moll, J., Krueger, F., Zahn, R., Pardini, M., Oliviera-Souza, R., Grafman, J. (2006, October 9). Human fronto–mesolimbic networks guide decisions about charitable donation. Retrieved from: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1622872/
- University of Michigan. (2002, November 12) People who give, live longer: U-M study shows. Retrieved from: https://www.eurekalert.org/news-releases/887795