The holiday season inspires charitable giving, but not every nonprofit is worth your generosity. The National Center for Charitable Statistics (NCCS) estimates there are over 1.5 million charities registered in America, and of those, only some use the majority of donation dollars to directly benefit the causes they support. So before you contribute to any nonprofit, ask yourself the following questions to verify its legitimacy, protect your donation, and make sure most of your dollars go toward a mission you believe in, instead of being squandered on administrative costs like CEO salaries.
Is the nonprofit approved by an auditing organization?
Organizations like Charity Navigator and BBB Wise Giving Alliance do the vetting for you. All you need to do is select the type of organization you want to support—like animal welfare, environmental, or child hunger nonprofits—then let these groups distribute your donations to a bona fide charity in that category. These websites also provide a search function to unveil any charity’s rating based on transparency, accountability, and more.
Auditing organizations like these are a great option for wary philanthropists, since they measure every nonprofit’s total fundraising dollars, grant money, how they spend donations, who funds their cause, top level executive salaries, and many other important factors.
Where does the money go?
If you decide to do the vetting yourself, it’s important to know where your money goes after you make a donation. The best non-profits—no matter what for—spend more than 65 percent of fundraising dollars on the programs and services they support. Organizations that spend less than 30 percent of donations on the group or cause they serve and more on administrative costs should raise a red flag. It’s not to say that these nonprofits are crooked (although, some are), but that there is a deeper issue with organizational structure, management, and process. Basically, your donations won’t work as hard for the mission you’re hoping to support when you donate to charities with this issue.
All of this information about fund allocation should be readily available on the charity of your choice’s website and the auditing organizations we’ve noted above, but if it’s not or an organization can’t tell you where your money is going, don’t trust it.
Are they a 501(c) (3) organization?
True nonprofits—meaning they’re non-taxable and the money doesn’t go to private individuals or toward political agendas or legislation—are registered as 501(c) (3) organizations with the Internal Revenue Service (IRS). These organizations benefit general public interest and range from hospitals to animal welfare groups to religious institutions, but all have the 501(c) (3) classification from the government. This is an important credibility designation charities commonly feature on any page that asks you to donate.
Are they private or public?
This might not matter to you, but there are several differences between public and private charities. For one, public charities must file Form 990, while private nonprofits file Form 990-PF (PF meaning private foundation), which demonstrate where they source donations. While public nonprofits generate revenue from the general public, private nonprofit groups, like the Bill and Melinda Gates Foundation or the Salvation Army, source their donations from one or a few corporate entities.
Many nonprofit auditors like Charity Navigator prefer public charities because their survival depends on individual giving—not large donations from corporations, grants, or other private groups. Public charities also allow a higher tax-deductible giving limit, so more donor money is funneled into the nonprofit. If you want your donation dollars to go further, donate to a public nonprofit, since these groups rely on every penny to do good work.
Where are they located?
While it’s great to work with a nonprofit that has international reach, it’s safer to make donations to charities headquartered in the U.S.. It’s harder to track where your money actually goes when you donate overseas, and this could lead to identity theft if scammers gain your financial information.
How long have they been around?
Newer charities compared to more established nonprofits run the risk of failure—just like any business. While this study is older, the National Center on Charitable Statistics (NCCS) found that 12 percent of all 501(c)(3)s that filed tax returns between 1989 and 2003 ceased to exist within five years and 17 percent didn’t file again after 10 years. Since 501(c)(3)s filing exempts smaller groups with less earnings from having to file in the first place, experts speculate that the failure rate with new nonprofits is even higher.
Supporting well-know organizations that have been around longer than 10 years reduces the chance of your donation going to waste. However, if you believe in a budding nonprofit, consider your donation a way to help it get up and running.
How are they asking for donations?
The following rule goes for any solicitor: never dole out personal bank account or sensitive financial information over the phone, email, or snail mail without verifying the validity of the donation request. All trustworthy charities should be able to give you a Federal tax ID number to show your donations are tax-deductible, and they won’t ever ask you to donate immediately, wire money, or give bank account or social security numbers. To stay safe, use checks, credit cards, and secure online payment portals to donate money.
Tips for Smart and Safe Donating
Use a payment service. Whenever possible, use secure payment services like PayPal to protect your financial information and donation. Services such as these have refund policies for fraudulent charges and protect your money with an added layer of security.
Don’t forget about tax write-offs! Donations to nonprofits are tax-deductible, so you can write them off on your taxes. Remember to keep receipts and proof of payment in case you are audited, and don’t forget to track your charitable contributions throughout the year, so you don’t throw away tax refund money.
Avoid flagged charities. As of November 2016, the following nonprofits have been graded as some of the worst in the country based on BBB standards. It’s not to say that these not-for-profit groups won’t ever improve their donation structure and fund distribution ratios, but for now, it might be safer to avoid the following charities:
SPCA International, NY
Tiger Missing Link Foundation, Tyler, TX
American Council of the Blind, Arlington, VA
Heritage for the Blind, Brooklyn, NY
American Association for Cancer Support, Knoxville, TN.
Cancer Survivors’ Fund, Missouri City, TX
The Committee for Missing Children, Lawrenceville, GA
Find the Children, Santa Monica, CA
Gaia-Movement Living Earth
Green World Action USA, Chicago, IL
Heart Center of America, Knoxville, TN
Childhood Leukemia Foundation, Brick, NJ
Shiloh International Ministries, La Verne, CA
Children’s Charity Fund, Sarasota, FL
Planet Aid, Milford, MA
Salesian Missions, New Rochelle, NY
Autism Spectrum Disorder Foundation, Schererville, IN
National Caregiving Foundation, Alexandria, VA
Disabled Police Officers Counseling Center, Niceville, FL
Firefighters Charitable Foundation, Farmingdale, NY
National Veterans Services Fund, Darien, CT
National Vietnam Veterans Foundation, Washington D.C.
Giving is better than receiving, but only when your charitable contribution makes it to the people or cause you want to support. And while you’re thinking about donating to others this holiday, don’t forget about the gifts that might be coming your way! Protect yourself on another level this season by reading about the best tips to keep your packages safe from theft.