Many people get great enjoyment from donating to various charities, clubs, programs, and religious or other organizations. But how do you know where your donations go? If you donate money, how much goes to overhead, and how much of it is actually used for the purpose for which you gave it? If you donate clothing, food, or other items, how are they distributed or used? There are a lot of questions when it comes to donations.
How to Know if a Charity is Legitimate
As someone who is freely giving with the intent to help people who need assistance, you should be able to ask questions and receive reasonable answers before you decide whether or not you should donate to a particular organization.
Questions to ask when solicited by a charity:
- Is the charity legitimate?
- Does this charity represent something you support?
- How will the charity use the donations you give them?
1. Is the charity legitimate?
Unfortunately there are many charities out there that are either fraudulent or less than forthcoming with their records. A good way to find out whether or not a public charity is legitimate is to find out if they qualify as a “tax exempt” organization with the IRS. To do this, you can request a copy of their IRS Form 990, “Return of Organization Exempt From Income Tax.” Federal law requires public charities to send you a copy of its IRS Form 990 for a reasonable charge, upon request. In addition, you can request a copy of the organization’s Annual Report.
However, just because an organization has filed a Form 990, that doesn’t mean they are actually a legitimate charity. It is easy to file a form with the IRS. You will also want to investigate a little more into the charity’s regular dealings and determine how and where they spend their money. More on this later.
Note: Private charities and churches and related organizations are also not required to file Form 990s and do not have to provide a copy of their IRS tax filings to the public upon request. You will have to do other research on these organizations.
You can also research the charity on-line. These websites can also help you find information about the legitimacy of a charitable organization:
2. Does this charity represent something you support?
This criterion could almost be interchangeable with number one, but I feel it is important to know if the organization is legitimate so you can help prevent other people form giving money to a dishonest charity. If the charity supports projects you agree with, then skip to number 3 – “How will the charity use your donations?”
If the charity doesn’t represent something you believe in, it doesn’t mean they aren’t a good charity, but it doesn’t mean you should support them either. Politely decline and ask to be removed from their contact list.
3. How will the charity use your donations?
Each charity should have a charter or mission statement that informs the general public of the charity’s goal. Most legitimate charities operate in a very transparent manner. At the minimum, the charity should be able to tell you how your donations will be used, and in some cases, you can even request that your funds only go toward certain uses.
You can even look past their mission statement, and determine how the money was actually used. Take for example, The American Red Cross fiscal year 2006 report, which shows that The American Red Cross spent 95% of their total expenses on charitable programs, 2% on fundraising, and 3% on administration. An overall efficiency of 95% is very impressive. The websites mentioned above can help you find some of this information.
You will also need to consider what you will donate and how the organization will use your contribution. Some charities are not set up to take certain donations.
What will you donate?
- Money: Always useful, always appreciated.
- Goods: Clothes, food, electronic equipment, etc. Make sure you know what they need or can use before donating.
- Time: Sometimes this is the most valuable gift you can give. For many people it is much easer to write a check than it is to spend a few hours helping out. But many charities need manpower more than money.
Giving to charitable causes is noble and giving is one of the best ways to help others. But you also have an obligation to make sure that your donations are going to an organization that you believe in and that your donations are going to be used properly.