7 Ways to Avoid Getting Scammed by a “Charity” This Holiday Season

A few years ago, a heartbreaking story in New Jersey captured the nation's attention. A couple, Katelyn McClure and her boyfriend, started a fundraiser to help a homeless man saying he used his last $20 to help McClure when she ran out of gas. The story resonated with thousands of people, leading to a massive response on GoFundMe, where donors contributed a staggering $400,000. However, this touching story soon came to light, revealing a shocking scam. The money disappeared and it was revealed that the couple had fabricated the whole story. Their deception eventually landed them both in prison, serving time for their fraudulent acts.

This caveat highlights the need for extensive research when you donate to charitable causes, especially during the holiday season, when people are most inclined to give. While countless organizations and individuals truly need help, there are also people who exploit goodwill for personal gain. To ensure your donations make a real difference, here are some essential tips to avoid scams and protect your generosity.

1. Check Charitable Status with the IRS

Before donating to an organization, first confirm its legitimacy through the IRS Tax-Exempt Organization Finder. This resource allows you to 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 to receive tax-deductible contributions. These two questions — whether the organization is tax-exempt and if your donation is deductible – are essential to ensure that your funds are donated to a legitimate cause. If the answers to these questions are unclear, it is best not to donate.

Check with the IRS if you want to determine if the donation you are making is tax deductible. (J. David Ake/Getty Images)

2. Research the charity's financial practices

Charities often advertise claims like “a portion of every dollar goes to…”, which could suggest that your contribution directly supports their mission. However, a closer look at the charity's finances may reveal a different story. To investigate further, review the organization's Form 990, a document that provides detailed financial information. This form describes how the charity allocates funds, including the proportion spent on programs versus administrative costs, and discloses executive compensation. Understanding these details ensures your gift aligns with your values ​​and expectations.

3. Differentiate 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 made to these campaigns are often not considered 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 funds will be used. This distinction between gifts and charitable donations can help manage expectations and avoid disappointment.

4. Use Charity Ranking Resources

Several online platforms provide valuable information about the legitimacy and effectiveness of charities. Charity Navigator is a popular website that rates charities based on their financial health, accountability and transparency. It also offers resources such as lists of trending charities, top ten rankings, and tips for donors.

Likewise, GuideStar provides comprehensive information on nonprofit organizations, including access to Forms 990 and community foundation data. By leveraging these tools, you can make informed decisions and ensure your contributions support reputable organizations.

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5. Explore 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 company, benefiting from a tax deduction for the calendar year. Your gift is invested and grows tax-free, giving you the flexibility to distribute grants to charities over time. DAFs are a great option for donors who want to maximize their tax benefits while maintaining control over how and when their funds are distributed.

6. Always ask for a receipt

Whether donating cash or non-cash items, always obtain an itemized 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. Sites like satruck.org provide valuation guides for common items, helping you accurately document their fair market value. Keeping complete records ensures compliance with tax laws and protects you in the event of an audit.

Several online platforms provide valuable information about the legitimacy and effectiveness of charities. Charity Navigator is a popular website that rates charities based on their financial health, accountability and transparency. It also offers resources such as lists of trending charities, top ten rankings, and tips for donors.

7. Protect yourself during the holiday season

Scammers often exploit the holiday season to take advantage of unsuspecting donors. For example, the U.S. Postal Service never sends unsolicited text messages or emails containing tracking links unless you have specifically opted in.

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Likewise, FedEx and UPS have resources on their websites to help distinguish legitimate communications from fraudulent communications. If you receive a suspicious message or are the victim of a scam, report it immediately to the FBI's Internet Crime Complaint Center at 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 that your generosity reaches those who truly need it. As you show 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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