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5 ways to determine whether a charity is naughty or nice

Updated Friday, Dec. 13, 2019


'Tis the season for a lot of things, including good will toward all. For many folks, that good will is exhibited by giving to charities.

The push is on for donation around this time every year. In the past, the solicitations were driven by the potential tax deduction that donors could claim.

Recent tax law changes, however, have change the math.

With substantially larger standard deductions, more people are avoiding Schedule A itemized deductions. That means they aren't able to claim their contributions to nonprofits as tax deductions.

Some analysts say the new tax law has been a drag on contributions from individuals.

Still, many folks give not for tax reasons, but because they agree with the causes that the charities support. The tax break is just icing on the philanthropic cake.

Regardless of why you donate, you still need to ensure your contributions do what you want and expect them to do, including providing a potential charitable tax deduction.

Before you write that check or click the donate button at an organization's website, here are five tips on how to check out a charity.

1. Look into the group's tax-exempt status.
If you plan to claim a tax deduction for your charitable gift, your money must go to a group that has received — and maintained — tax-exempt status from the Internal Revenue Service.

The IRS' Tax Exempt Organization online search tool is a good place to start.

You also can check out the legitimacy of nonprofits via watchdog groups, such such as Candid (the newly merged GuideStar and Foundation Center), Charity Navigator, the Better Business Bureau Wise Giving Alliance and Charity Watch.

Even if you aren't going to get a tax deduction for your donated dollars, making sure the group(s) to which you want to give do follow our federal tax rules is still a good idea.

2. Examine the charity's efficiency.
The last thing you want is for a charity to waste its — and by its, I mean your — money. So take time to check out how the group operates, specifically how it spends its funds.

There are several different efficiency factors to examine.

First, you want to know how much of the nonprofits' total budget goes directly to the charitable purpose. If it's spending more on administrative functions than directly helping the cause for which it was formed, it might not deserve your support.

This will never be 100 percent. All groups have to spend some of their donations on things like management, some overhead expenses and fundraising. But if that amount tends to lean more toward operational costs vs. help/services provided, you might want to rethink your gift.

A group's fundraising efficiency also is instructive. Basically, you want to see how much it spends to get its donations. If most of your money is going to help a charity get more money, it won't go to provide the help you had hoped the group would provide. Efficiency ratios vary depending on the types of groups and how they raise their money, but one that doesn't have to spend a lot to get more is preferable.

Finally, you should look at how dependent a nonprofit is on donations. Here you want to see whether a group had more revenue than expenses or vice versa. Ideally, a charity should be able to bank at least some of its donations instead of immediately spending the gifts to keep the doors open. Again, this varies by the nonprofit types, how they are set up and what type of investments they have. But a hand-to-mouth charity might not be able to accomplish the work you want to support.

You should be able to get these answers from a charity's official filings and solicitation documents, as well as by checking out their ratings at the previously mentioned watchdogs' websites.

3. Ask, and get answers to, questions.
There are several key questions you should be able to have answered in either a charity's documents or on its website. They include:

  • What is your organization's mission? If a charity can't readily explain its mission and programs, it likely will struggle in delivering on its mission.
  • What are your organization's goals, both short- and long-term? Goals measure success. Again, an inability to communicate clear goals could mean problems in achieving them.
  • How have you met such goals? If you do get a good answer about a group's goals, follow-up. Recent examples of both immediate and longer-term goals can help you see how a group is doing in turning its wants into action.
  • How much turnover have you experienced, both in employees and board members, in the last two years? Personnel changes are common in every organization, but recent full-scale turnover could be an indicator of problems within the group.
  • To what degree have you attracted new people and new ideas to your organization and board? The other side of the turnover coin is whether the nonprofit is moving forward or stuck with a dated organizational structure and personnel not willing to explore innovative ideas and approaches.

4. Beware charity scams.
There are lots and lots of good charities out there. There also are lots of skeevy crooks looking to take advantage of your good heart to steal your money by setting up fake charities and similar scams.

If you get a solicitation that seems iffy, trust your gut. Check it out, both by demanding answers from the ostensible charity and using the third-party watchdog groups. If the soliciting charity can't or won't answer your questions, chances are it's at best a poorly run group and at worst an illegal enterprise.

Your state's attorney general and/or secretary of state offices also are good places to check to see if complaints have been filed against or investigations launched into groups.

5. Don't be rushed.
Yes, you're getting lots of phone calls and emails and old-fashioned Postal Service solicitations for money as the end of the year nears. Don't be intimidated by the urgency of the solicitations or the impending deadline.

If you're like most folks, you don't itemize — and even more won't next year thanks to the increased standard deduction amounts under the Tax Cuts and Jobs Act — so missing the Dec. 31 donation date won't matter to your tax filing.

That means you can take your time to check out charity requests and give to the ones you determine really does meet your personal philanthropic point of view and does so in a legitimate, efficient and caring way.

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