Your Finance: Making donations to charities
As the year nears its close, charities are making their final appeals -- hoping to raise as much as they can during the traditional season of giving. But how do you decide if a charity is going to be a good steward of your money, or if your cash will go to the cause you would like it to?
Unfortunately, the vast majority of donors do not do any research before giving, says Bennett Weiner, chief operating officer of the Better Business Bureau's Wise Giving Alliance.
You can find a repository of information about charities at the main evaluators, including GuideStar USA Inc. (guidestar.org), Charity Navigator (charitynavigator.org) and the Wise Giving Alliance (bbb.org/us/charity/), operated by the Better Business Bureau.
But you can dive a bit deeper on your own, too. Here are some research tips.
Transparency: If you're considering giving to a specific charity, take a look at its website. You should be able to find a link to the group's tax return on the site, called a Form 990 (charities' tax returns are available to the public) as well as its yearly audit report and annual report. Very small groups -- those that raise less than $50,000 a year -- do not have to file a detailed tax return.
The annual report doesn't need to be fancy, but should include a summary of the group's finances, a list of board members, the organization's mission and its accomplishments.
Avoid single benchmarks: Earlier this year GuideStar, Charity Navigator and the Wise Giving Alliance denounced the long-standing notion that a charity could be evaluated by how much it spends on overhead. Spending a lion's share of revenue on fundraising is still a red flag, Weiner says, but having a low ratio isn't necessarily a green light.
It boils down to figuring out if the group spends its money in a way you want to get behind. "People should use common sense," says Ken Nopar, a Chicago-based philanthropic adviser. "How many people is the organization helping? What impact is it having? Sometimes people focus too much on the costs within the organization."
Board members: Check the background of members on the boards of charities to see if they have relevant expertise and be leery of any board that includes multiple family members of the person running the group, say both Nopar and Weiner. That can significantly impair oversight.
Tax benefit: Distinguish between bona fide registered nonprofits that will qualify your donation as tax deductible, and those groups that do political lobbying. They may support a cause you like, and you may want to contribute to the political effort, but your gift won't be tax deductible.
Tears don't help: An emotional pitch from a charity, while potentially effective, shouldn't be taken at face value. Indeed, it could be distracting, Weiner says, from what isn't there: the important information.