5 Tips on Giving to Charity

1. Learn the Basics about the Charity

Go to the website of different causes and find out about what their mission is and where the money goes. Check out who is on the board of directors, and look up the most recent financial statements, which are public record at www.irs.gov.

Be wary: if the charity does not have the above information readily available, you may want to reconsider your donation. Charities have a duty to be transparent and honest, and the most ethical charities usually encourage your interest and are ready to answer your questions and supply information.

2. Research the Organization

On Charity Navigator, an independent non-profit charity evaluator, you have access to free ratings of American charities. They grade everything from religious organizations to car donation programs, with over 5,400 charities in their database currently. Their mission is to help donors make informed decisions on where their donations dollars are going.

They evaluate using two broad areas: financial health and accountability/transparency. They then are rated used zero to four stars. The Make-A-Wish Foundation, for example, has the highest possible grade of four stars and a score of 61.41/70. It then breaks it down even further with information on program expenses, fundraising efficiency, administrative expenses etc. It also shows the most current years revenue and expenses.

Note: The program expenses are an important figure in the non-profit world. In many scenarios, an expense ratio of 60% is usually considered satisfactory. Again with the Make-A-Wish example, they have a ratio if 75% of the money going to the intended cause- which establishes them as a highly efficient charity.

3. Keep Records of Your Donation

Find out if your donation is eligible to receive tax-deductions. If an organization engages in any type of lobbying or political activity, it precludes them from receiving tax-deductible donations.

Note: "Tax-exempt" and "tax deductible" are two different things. "Tax-exempt" means the non-profit does not have to pay taxes, while "tax deductible" applies to the donor and allows the donation to be deducted from the donor’s federal income tax return. Request the charity’s tax-exempt letter to find out if you can legitimately claim your contribution as a tax deduction. The organization must be tax exempt in order to make the deduction.

4. Be Wary of Charities Offering Gifts

This can be a sneaky tactic that non-credible organizations use to not only pressure donors to give, but trick them. Many times if there are 'free incentives' offered in return for a donation, this also effects the tax deductions for which a donor is eligible. Any gift, such as a vacation voucher for example, offered in return for a donation is then taken from the amount you are allowed to deduct from your federal taxes.

5. Do not be Misled by a Charity's Name

Many times non-credible organizations try to fool donors by taking on aliases very similar to trustworthy and established organizations. Again, make sure to check out the charity on Charity Navigator or Charity Watch and get the information and ratings on the organization. Make sure to dig around on the charity’s website as well and find out what the cause is exactly.

For example, if it is an organization to help 'kids', find out what type of kids are eligible for their funds. Each non-profit has a specific mission, so even the ones who advertise as helping 'kids' has a specific group to which they give their funds to, which is important to find out before you donate.