This year, the spirit of giving has taken on even greater importance as so many people continue to struggle under financial strain brought on by the pandemic response.
Not surprisingly, charitable organizations, which support those in need, are also struggling immensely.
“A lot of charities are taking a hit because of the pandemic,” explains Navroz Janmohamed, partner at the accounting firm Manning Elliott LLP. “They can’t hold their usual fundraising events, which means marathons, charitable dinners, live shows, and all other events are continuing to be cancelled.”
Janmohamed, whose practice focuses on not-for-profit organizations, says that some charities are still managing, but not as well as before Covid. Overall though, there has been a significant drop in donations for most organizations.
Charities have had to adjust rapidly by moving to an online platform for fundraising, even offering programs virtually.
Janmohamed encourages those who donate during the holiday season or at any other time of the year, to be mindful of a few key points when it comes to making donations.
He suggests donors consider whether they would prefer to support a local charity like the food bank, rather than a national organization.
Most people choose causes, like an educational institution or medical issue, close to their heart. This year, redirecting that donation money to the greatest need from a local perspective would be worth considering to uplift our communities.
If you elect to support a different charity, Janmohamed advises doing research on the organization beforehand. It is also important to ask questions about the process, where the money is going and how it will be used. You can even follow up and ask the charity to notify you when your donation has been used.
He also suggests looking into the charity’s financial information, which is readily available on the CRA website.
“You can type in a charity’s name, and the website will pull up the organization biography and where their funding is spent,” Janmohamed explains—adding that in many cases audited financial statements are also available along with these reports.
All this information will attest to the legitimacy of the organization, which is crucial to ascertain anytime, but especially this time of year when there are even more unscrupulous types attempting to swindle people in the name of doing a good deed.
“With all the scams these days, you want to research the charity. Don’t let yourself feel pressured by the door-to-door pitches or phone calls, and don’t give out your personal information. Even if you think it’s legitimate, do your research before giving your information or money,” Janmohamed counsels.
When it comes to charitable tax deductions, there are also a few things to keep in mind.
Tax receipts are more easily issued by a registered charity for cash donations. Donations of gifts in kind , like furniture or equipment, can receive a receipt, but the process is much more complicated.
And, if the donor receives something in return for the donation, like a t-shirt, for example, the value of the item is then deducted from the original donation.
Anything received in return that is of a value greater than 80% of the original donation, negates a tax deduction.
Janmohamed points out that a donation doesn’t result in a dollar for dollar deduction on your personal tax return. It becomes a donation credit. “The credit rises to a higher percentage after the first $200,” he says.
Combining the receipts with a spouse can maximize that deduction, but it’s important to remember to keep the receipts in case CRA requests them.
As much as Janmohamed doesn’t want to downplay the importance of making gifts in kind donations, such as clothing, building materials and furniture—cash donations give the charities flexibility in directing resources to the greatest need.
For the food bank, as much as food donations are vital, a cash donation can be more beneficial. Money cannot only be used to fill the gaps that food donations don’t cover, but the organization’s purchasing power as a large group with local grocer relationships can stretch those dollars in a way that an individual shopper can’t.
“People are struggling. Many are still losing their jobs or not working full time and the local not-for-profit organizations are struggling to support them. We need to step up and help our community—especially during the holiday season,” Janmohamed says.
He hopes that people will keep this in mind during this season of giving.
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