10 Commandments on Picking a Charity

How to make absolutely sure your charity of choice is legit.

Tax-exempt organizations are the fastest growing sector in the U.S. economy. Over 68,000 new charities were created between 2006 and 2007. There are nearly 1.9 million nonprofit organizations, and the competition for funds has become intense. As charities face inflation, government budget cuts and an increasing public demand for services, they ask you for more donations. Increasing numbers of charities use high-tech fundraising techniques. Mailboxes overflow with fundraising appeals. Phone calls pour in from high-pressure solicitors. All this can leave you confused about which charities are most deserving of your contributions. Below are the American Institute of Philanthropy’s (AIP) pointers for making sure your charity is honest and accountable to their donors.

1. Know your charity.

Charities have an obligation to provide detailed information to interested donors. Never give to a charity you know nothing about. Request written literature and a copy of the charity’s latest annual report. This should include a list of the board of directors, a mission statement and the most recent available audited financial statements with accompanying notes.

If a charity does not provide you with the information you request, you may want to think twice about giving to it. Honest charities typically encourage your interest and respond to your questions.

2. Find out where your dollars go.

Ask how much of your donation goes for general administration and fundraising expenses and how much is left for the program services you want to support. AIP’s Charity Rating Guide recommends that in most cases 60% or more of your charitable donation should go to program services. In AIP’s view, 60% or greater is reasonable for most charities. The remaining percentage is spent on fundraising and general administration. Note: A 60% program percentage typically indicates a “satisfactory” or “C range” rating. Most highly efficient charities are able to spend 75% or more on programs. Less than 40% should be spent on general administration and fundraising costs. Keep in mind that newer groups and those that are working on less popular issues may find it necessary to spend a greater percentage on fundraising and administrative costs than well-established, popular groups.

Attempt to seek more information about charities that identify as “public education” large portions of their direct mail and telemarketing expenses. This may be done in some cases to disguise high fundraising costs.

It is difficult to find out the real percentage of donor dollars spent on program services due to the inconsistent quality of charitable self-reporting. But you can ask the charity’s representative for specific information, such as how many individuals were served annually or what were the major program accomplishments during the past year.

3. Do not respond to pressure.

Do not let yourself be pressured into contributing on the spot. If you are not familiar with a charity, request additional information in writing. Inspect it carefully and write a check if you decide to donate. You have a right to say no. No legitimate organization will pressure you to give immediately.

4. Keep records of your donations.

Do not give cash. Also, do not give your credit card number to a telephone solicitor or internet site that you do not know. Be sure to obtain a receipt or printed copy of your donation so you will have a record for tax purposes. Read more tips for giving on-line.

For tax purposes, you will need to keep a record of all your contributions of any amount. For contributions under $250, records may be in the form of a bank record, cancelled check, or written communication from the charity. The written communication may be in the form of receipt or letter that must contain the charity’s name and the amount and date of the contribution.

For all tax-deductible contributions of $250 or more, the IRS requires that you obtain a receipt from the charity (a cancelled check will not suffice).

5. Remember: “Tax exempt” does not always mean “tax deductible.”

Not all charities soliciting for “good causes” are eligible to receive tax-deductible contributions. “Tax exempt” means the organization does not have to pay taxes. “Tax deductible” means the donor can deduct contributions to the charity on his or her federal income tax return. Request the charity’s tax exempt letter. If the charity does not have a tax exempt letter indicating its status with the IRS, you cannot legitimately claim your contribution as a tax deduction.

6. Do not be misled by a charity’s familiar name.

Some questionable charities use an impressive name which closely resembles the name of a respected, legitimate organization. Ask for information in writing. Check out the charity with AIP or other watchdogs or check with your state charity registration office before making a contribution.

7. Do not be enticed by emotional appeals.

Beware the pathetic “sob story.” The hard-luck appeal is a favorite of some organizations. Question phone solicitors or direct mail appeals which tell you nothing of the charity or offer vague explanations for spending your charitable dollars.

8. Ask if the charity is registered by federal, state, and/or local authorities.

Nearly all non-church charities with more than $25,000 per year in income must file financial information annually with the IRS. Currently 39 states and the District of Columbia require that charities register annually. Bear in mind that registration in and of itself is not a stamp of government approval or endorsement of the charity.

Beginning in 2007, charities with annual incomes of under $25,000 will be required to file very basic non-financial information annually with the IRS.

9. Beware of charities offering gifts.

Direct mail solicitations are often accompanied by greeting cards, address stickers, calendars, key rings or other “gifts.” Charities do this because it can increase donations. But do not feel that you have to make a contribution to keep these “gifts.” It is against the law for a charity to demand payment for any unordered merchandise. Beware that these enclosed items can mean higher fundraising costs for the organization.

10. Consider giving generously.

Once you are satisfied that the charity is worthwhile, give generously if you can. There are many good charities that need your help to operate valuable programs and provide needed services. When you give wisely, you will be giving more effectively.

The mission of the American Institute of Philanthropy (AIP), a nonprofit charity watchdog and information service, is to maximize the effectiveness of every dollar contributed to charity by providing donors with the information they need to make more informed giving decisions.

The above information may also be accessed at the AIP website at http://www.charitywatch.org/tips.html

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