If you’d like to make sure your donations to charitable causes actually get to the people who need your help, you have several options for determining where your money goes. Some charities use the majority of their funds raised to do charitable works, while others spend shockingly little. Fortunately, the public can find out which are which, most of the time.
Types of Nonprofits
Before you donate to what you think is a charity, determine its nonprofit status. Some nonprofits don’t obtain charitable status, which is granted by the U.S. Internal Revenue Service. In some cases, obtaining nonprofit status at the state level is enough for a nonprofit to meet its goals; however, any donation you make to these organizations doesn’t qualify as a charitable deduction on your tax return. Get a letter from any nonprofit you wish to work with clarifying their nonprofit status and whether your donation is tax deductible.
There is no law stipulating how much money a charity must spend on its purpose. Watchdog group Charity Navigator suggests that legitimate charities spend at least two-thirds of their revenue on their charitable activities, and it estimates that 9 out of every 10 charities spend at least 65 percent on fulfilling their missions. CharityWatch says it is reasonable for charities to spend up to 40 percent on administrative costs. It rates charities that spend at least 75 percent of the funds they raise on their mission as highly efficient. A 2013 study of charities by the Tampa Bay Times, Center for Investigative Reporting and CNN found that America’s 50 worst charities raised close to $1 billion over the course of a decade and spent approximately 49 million, or less than 5 percent, on charitable activities. Much of their money went to pay executives and professional fundraisers.
To determine how much of each dollar donated goes to a nonprofit, find the website of a reputable charity watch organization such as Charity Navigator or CharityWatch. These organizations review the annual tax returns known as a Form 990 and calculate how much of each dollar a charity receives goes toward its office administration, fundraisers and its mission. Depending on the charity you are evaluating, you might be able to do a search and find its rating.
Obtaining Nonprofit Records
To check out nonprofits in detail, you can ask for a copy of its Form 990 if it is federally tax-exempt, or contact a secretary of state’s office to find out what information is available to the public on charities incorporated in that state. You might be able to obtain and download a Form 990 for free at a website such as Guidestar.org or TheFoundationCenter.org. If not, a tax-exempt organization must provide a copy of its Form 990 for your inspection.