According to the IRS, an organization qualifies as a charity if 35% or less of its income goes to administrative expenses such as salary and operating costs, with the remaining 65% going to the cause they claim to support or fight. With over 1.1 million charities in the United States alone, it can be confusing to decide which organization to give to. Every day the images of those in need can be bombarded at us in addition to mailings, charity walks, food drives, change jars, and much more.
With literally billions of dollars at stake, how does the average person navigate this maze of giving? With average pay down and prices for just about everything up, a family’s charitable contributions can be the first expense to be cut, but there are ways to ensure that what is donated can be put to its best use.
1. The Problem With Charities and “Charities”
According to the FBI, there are hundreds of thousands of complaints of scams involving charities reported each year. The most often time these complaints occur is during the holidays or after a natural disaster. These false charities simply take the money and run, never giving a cent to the victims they claim to be helping.
Other false charities claim to need sensitive information in order to process your donation. This includes your name, address, credit card information, bank accounts, and even social security number. The goal of these charity scams is often to use this information in a form of identity theft. Many charities do accept credit cards, but don’t give out your information if you are not comfortable.
Another charity scam happens when those who run the charity falsify records to make it seem as if they are keeping administrative costs under the required 35% but are actually using the money on frivolous expenses such as travel, new office equipment, and events.
All of these types of charity scams not only rob donors of their hard-earned pay but also keep it from those who truly need it.
2. The Basics of Giving
First and foremost, you may choose to be charitable with your heart, but remember to give with your head. Charities that employ moving pictures and strong messages during national commercials may be enticing, but they may not always be the best choice. Someone on the street raising money or going door-to-door may be harder to say “no” to, but they can also be part of a scam.
If you know which type of charity you would like to give to, such as an adopt-a-child plan or to fight a certain illness, don’t simply give to the first one who asks, do a little research. One of the best and quickest ways to research a charity is by going to Charity Navigator (http://www.charitynavigator.org). The site lets you type the name of the charity you are considering into their search engine. The site then gives you an overall rating from 1 to 4 stars, a financial score, as well as an accountability and transparency score. They also have many charts on the charities including a breakdown of their expenses and how easy it is to access their information.
If you know which cause you would like to donate to, check out Charity Navigator’s Top Ten Lists. They are full of information on the best performing charities including most consecutive 4 star ratings, celebrity-related charities, and even charities with high or low paid CEOs.
Remember that the goal of any reputable charity is to be as transparent as possible. Many can have their finances listed on their website. Any charity that is stubborn in showing their expenses and/or income is more likely to be less deserving of donations.
3. What Charitable Giving Means for Your Taxes
All charities in the United States are required to have a 501(c)(3) or similar classification. This is the only way you may claim a charitable deduction on your tax return. If interested in a charity, ask for their exempt status and look them up using the Internal Revenue Service’s Exempt Organizations Select Check Tool (http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). It can give you the tax information on these charities to verify if they are eligible to receive tax-deductible charitable contributions.
Another federal organization that helps rate a charity’s effectiveness is the Federal Trade Commission’s branch on charity scams. They provide the latest in specific charity scams, by location, and even put out scam alerts as they receive them.
Other good sources include the American Institute of Philanthropy – which provides tons of information to help donors make informed decisions, the Charities Aid Foundation – a UK based foundation that provides a “World Giving Index” in addition to ranking top rated charities, and the National Center for Charitable Statistics – which provides facts and figures on charitable giving.
Other sources on the web include the Chronicle of Philanthropy – a publication that provides daily information on charities, The Non-Profit Times – who puts out yearly reports in addition to current information on non-profits, and Ministry Watch rates charities that are or claim to have a Christian mission.
And don’t forget the Better Business Bureau, which is known for holding for-profit businesses accountable and logging complaints filed against them. A little known fact is they also do the same for charities.
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If you or your business needs help keeping the books straight, including for charitable giving, contact us.