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Wise Giving to Charities
Helpful precautions when making a donation 

Photo of Daniel Borochoff, President, American Institute of Philanthropy

Compiled by Daniel Borochoff
President, American Institute of Philanthropy

       Tax-exempt organizations are the fastest growing sector in the U.S. economy. About 30,000 new charities are created each year. There are now 1.2 million nonprofit organizations and the competition for funds has become intense.

       As charities face inflation, government budget cuts and a growing demand for services, they ask you for more donations. Increasing numbers of charities use high-tech fund-raising techniques. Mailboxes overflow with fund-raising appeals. All of this can leave you confused about which charities are most deserving of your contributions.

       Most charities are honest and accountable to their donors. Unfortunately, a few are not. American Institute of Philanthropy suggests the following pointers to help you give more effectively:

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 financial reports.

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

With a little effort, your money can go much further.

2. Find Out Where Your Money Goes
       Ask how much of your donation goes for general administration and fund-raising 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. Less than 40% should be spent on general administration and fund-raising costs. Keep in mind that newer groups and those working on less popular issues may find it necessary to spend a greater percentage on fund-raising and administrative costs than well-established, popular groups.

       Beware of charities that identify as "public education" large portions of their direct mail and telemarketing expenses. This often disguises high fund-raising costs.

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

It's a good idea to keep track of your donations

4. Keep Records of Your Donations
       Do not give cash. Also, do not give your credit card number to a telephone solicitor you do not know. Give your gift by check or money order so you will have a record for tax purposes.

       The IRS requires that you obtain a receipt from the charity (a canceled check will no longer suffice) for all tax-deductible contributions of $250 or more.

       When you donate more than $75 to a cause and receive something in return, like a dinner, the charity must subtract its value from the total amount of your gift. Only the remainder is tax deductible. If you donate less than $75, it's your responsibility to separate the cost.

       Get an independent appraiser if you plan to give appreciable property worth more than $5,000. The IRS does not accept appraisals by the charity or the giver for property worth more than $5,000.

5. Do Not Be Misled by a Charity's Familiar Name
       Some questionable charities use an impressive name that 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.

Making donations may benefit you as well as others

6. Remember that "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 you can deduct contributions to the charity on your federal tax return if you itemize your taxes. Contact the IRS or the public library and refer to the IRS listing of organizations to which contributions are tax-deductible.

7. Do Not Be Enticed by Emotional Appeals
       Beware of the pathetic "sob story." The hard-luck appeal is a favorite of some organizations. Question phone solicitors or direct mail appeals that 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
       Registration in and of itself is not a stamp of government approval or endorsement of the charity. It does not necessarily prove that the charity spends donations honestly and efficiently. However, most legitimate charities are registered.

       Nearly all non-church charities with more than $25,000 per year in income must file a 990 financial form annually with the IRS. You can make a written request to the IRS for a charity's IRS Form 990, but expect to wait two months or more to receive the information.

       Currently, 39 states require charities to register annually. You may receive the form 990 more quickly if you request it from a state office.

       Under federal law, charities are required to make copies of their 990 for the past three years available to individuals via mail upon request. You can also go directly to the charity's office and request to view the Form 990 or to have a copy of it made.

Gifts are not always a good thing and you shouldn't trust everyone who offers them

9. Beware of Charities Offering Gifts
       Some charities include free greeting cards, address stickers, calendars, key rings or other "gifts" in their direct mail solicitations. They send these items to increase donations, but this can mean higher fund-raising costs. You are not bound to make a contribution to keep a "gift." It is against the law for a charity to demand payment for any unordered merchandise.

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.

 DANIEL BOROCHOFF is founder and president of the American Institute of Philanthropy, one of the nation's foremost charity watchdogs. He served as a member of the Hearts & Minds governing board from 1996 - 2010, providing invaluable advice on our financial and ethical practices.

To receive a sample of AIP's Charity Rating Guide and Watchdog Report, send $3 to:

American Institute of Philanthropy
3450 North Lake Shore Drive
Suite 2802E
P.O. Box 578460
Chicago, Illinois 60657
Phone: 1-773-529-2300
E-mail: [email protected]
Website: www.charitywatch.org

AIP's Guide has timely articles on charities and helpful advice to aid in giving decisions. A $40 tax-deductible contribution to AIP includes receipt of three Guides and supports its work to promote more effective giving.

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Copyright: 2004 by AIP, originally published in the December 2004 issue of its
Charity Rating Guide & Watchdog Report - edited version online,  All photos on this web page, except first photo,  by Microsoft Clip Art,  This website Copyright: 1997 - 2015 by Hearts and Minds Network, Inc.
 http://www.heartsandminds.org/articles/wisegive.htm - latest text changes August 14, 2010

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