Giving to charitable organizations is an American tradition. This was even more evident in the aftermath of the September 11, 2001 terrorist attacks. It's great to be generous but you need to know if your donation is going to a charity instead of to a scam. Also, is your donation tax deductible? And, will your donation be used for the purposes you support? Check it out before you write that check!
The billions of dollars donated each year in this country by individuals, corporations and foundations goes a long way to improve our way of life. Charities help support the arts, clean up the environment, provide an option for at-risk kids, save animals, feed the poor, give abused spouses shelter, and so much more. There are an estimated 850,000 charitable organizations in the United States, plus virtually all organized religions. And the Federal Government recognizes the importance of charitable giving to qualifying organizations by allowing donors to deduct their financial or in-kind gifts from their taxes.
What is a qualifying charity?
There are 21 types of tax-exempt organizations under U.S. law. While all are exempt from federal income tax, only contributions to churches, and to what is known as a 501 ( c ) ( 3 ) non-profit organization can be claimed for a tax deduction. Generally they must be organized for scientific, literary, educational, environmental, or some other altruistic purpose that benefits the public. They are not to benefit a particular person. And all such organizations are required to file extensive paper work to support their tax exempt status, which includes such things as their mission statement, by laws, and a list of officers and board members. They are also required to have regular board meetings, keep minutes, and if they raise more than $25,000 annually, file a form 990 tax return. Although no tax is paid, the non-profit must submit a detailed annual budget, including how much was spent on fund-raising and administrative costs. This becomes a matter of public record. The United Way, The Humane Society of the United States, the Boy Scouts of America and the Salvation Army are just a few examples of tax exempt charities in the U.S.
Where does the money go?
It is fair to say that it takes money to make money and virtually all charities use fund-raising of some kind to get the necessary funds to operate. But a major question is, how much money is being spent to raise those funds? There are many rules of thumb to follow and one is by the Council of Better Business Bureaus which recommends that at least 50% of the total income of a charity should be spent on the programs it uses to benefit the public. When the charity spends significantly less than 50% on the benefits as described in its mission statement it is cause for concern. You don’t want most of the funds you donate to go for administrative and fundraising costs. You can always ask for written materials such as an annual report or budget from the organization so that you can make a reasoned decision about giving. And be mindful of how the charity promotes itself. Does it run a lot of radio and TV ads? Does it mail out expensive fund-raising material? Does it advertise in magazines and newspapers? This all costs a lot of money. Is the budget adequate to cover these costs, yet deliver “ the goods?”
Airports, Doorbells, Phone Calls and Cardboard Signs
Unfortunately there are a lot of people who take advantage of Americans’ charitable giving generosity by running scams and other approaches to con you out of your money. It is important to stress that many charities do personal solicitations BUT you need to be on guard for those that pose as bona-fide charities but aren’t.
You see people at airports, outside supermarkets, and standing by stop signs with a cardboard sign asking for money. If you’re feeling generous and just want to help someone who appears to be “down and out” then that’s fine. But did you know that many people who pan-handle actually go through a training period to get your money? And some of them earn well over $100 per day doing just that. In fact the people with the cardboard signs at stoplights know that the sign itself is an art form. Many are careful to use the key words, “veteran,” “will work for food,” and “God Bless.” At airports, some people asking for your money wear authentic-looking uniforms or religious outfits of some type. And the same is true if someone rings your doorbell or stands outside of a supermarket. But the worst cons are done by phone where a person tells you he or she is raising money for a police or fire organization. Don’t you believe it for a minute.
If you get a phone call asking for money, tell that person you need them to fax or mail their federal ID number. Every registered tax exempt organization has one. You will also want a copy of their tax-exempt letter from the IRS, recognizing them as a 501 (c ) (3 ) non-profit. The next thing you will probably hear is a click at the other end of the line. So, whether it is by phone, in person or in the mail, a bona-fide representative of a charity will readily provide you with proof that they are in fact a tax deductible charitable organization. In addition, some cities require that anyone raising funds for a charity must have a permit.
Don’t Feel Guilty
Remember you are under absolutely no obligation to give so don’t allow yourself to be pressured. You don’t have to “decide now.” And never give out your credit card number unless you are sure you are giving to a bona-fide charity. Otherwise you might find yourself giving and giving and giving without your knowledge, and all the time the money is going into someone’s pocket.
Checking it out!
Any charity which raises more than $25,000 annually is required to be listed with that state’s Attorney General. And the IRS also keeps track of charities. Further, the Post Office keeps a roster of charities which use non-profit mailing permits. All of this information is a matter of public record.
Remember it is OK to be generous. But you want to help for the right reasons and you want to help the right charity. So, take the time to check things out before you donate, especially if you’re looking for that tax deduction.