Philanthropy: 5 Steps to Evaluate Charities for Year-End Donations

Philanthropy: 5 Steps to Evaluate Charities for Year-End Donations

by A. Scott White, CFP®, ChFC®, CLU; President, Scott White Advisors

As the holiday season approaches, your mailbox and email will fill with donation requests from charities. Lots of charities. According to Cause IQ, in 2020 there were over 1.8 million nonprofit organizations, 1.7 million of those being active organizations. The number is growing each year; since 2016, close to 20,000 additional nonprofit organizations were registered. And although 2020 hit many nonprofits hard, the Urban Institute theorizes that corresponding social movements may have created momentum for others.

If you’re like me, you want to make a difference for those who are less fortunate than you. As your year wraps up, your spirit of giving includes charitable financial donations. But you want to make your contribution decisions in an informed manner, to be sure your donations are put to use in the way you intend.

So how do you make wise giving choices? Here are 5 steps to streamline your charity evaluation process.

1. Determine your philanthropic priorities.

What causes are important to you and your family? What impact do you want your donation to make? Get specific. Some donors give to charities in their communities, wanting the money to stay where they live and support nearby people and needs. Some donors want to fund national or international programs and issues, or research. You may want to fund a start-up charity, or perhaps an established one. Decide what is most important to you, then make a list of charities that provide services relevant to your priorities.

But be careful. Some donors choose charities based on the name of the charity. But names can sometimes be misleading-or worse, the charities can be shams, with names that sound like other, well known charities so that donors will think they’re giving to the well-known entity.

2. Consult charity watchdog resources.

Free charity evaluation websites such as BBB Wise Giving Alliance, Charity Navigator or GuideStar can speed your research process. These sites review, analyze and score charities based on specific criteria such as programmatic results, transparency, oversight and governance, compensation, expenses, overhead, and donor privacy. If a charity evaluation service has looked into the nonprofit you’re interested in, chances are you’ll be able to complete your research using their resources.

3. Confirm the charity’s tax-exempt status and mission.

But what if the charity you’re considering isn’t listed in the charity watchdog services you consulted? Newer charities may not yet be in the pipeline for evaluation, and charities with very small budgets typically aren’t included in those watchdog databases. In that case, you’ll want to do yourself. Confirm that the charity you are considering supporting is a tax-exempt 501(c)(3) public charity. If you aren’t sure, ask for a copy of the charity’s nonprofit determination letter from the IRS. (Only bona fide nonprofit organizations with tax-exempt status receive this document from the IRS.) If the organization is faith-based, ask to see its listing in its official denomination directory. Once you’ve confirmed nonprofit status, visit the charity’s website for information about its mission, programs and services, board of directors, and annual reports.

4. Examine the charity’s finances.

Among the documents to look for is the charity’s IRS Form 990 or 990EZ, which charities that have revenue of more than $50,000 are required to file. (Religious organizations are exempt.) This form allows the IRS and the general public to evaluate a nonprofit’s operations.

Form 990 information reveals the charity’s missions, programs, and finances. It provides data on how much a charity raises and how it spends its money. It includes direct, indirect, and government support, as well as program service revenue. It also shows program, management and fundraising expenses. According to GuideStar, financial information is more meaningful when viewed over several years. A single year’s Form 990 is a snapshot in time, and organizations typically change over time. GuideStar recommends potential donors review three years of financial information.

5. Donate. Then follow your investment.

Once you’ve decided which charity to support and you’ve made your donation, don’t stop there. Follow up with the charity in 6 months. Ask how they’re using your money. If you’re not satisfied with their answer, don’t continue to support that nonprofit. But if you are satisfied with the use of your donation and the charity’s progress, consider making a commitment to support their work over the long haul. It’s the long-term investment of committed donors that helps charities make the most progress-and achieve their worthwhile missions.

If you need support incorporating your philanthropic goals into your financial plans contact us at Scott White Advisors today. Visit or call (239) 936-6300.


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