Before Making a Donation, Here’s How to Find Out if the Charity is Legitimate.

Your Donation May Not Go to a Worthy Cause

Provided by Angel McCall CFP®

When I received the lovely greeting card, tender letter and dream catcher from a Native American School, I immediately wrote out a check. Then, I thought to look up the organization to learn more about it. I learned that even though they collected $51 million last year, almost none of it went to a school.

Prospective donors can find a suitable charity just about anywhere they look. However by doing some homework, you can better distinguish among the many giving opportunities available to you.

What Makes a Charity a Charity?

Generally, a charity is a tax-exempt organization that can receive tax-deductible contributions. To be recognized as a charity, most organizations must file an application with the IRS. Once approved, the IRS generally issues a determination letter confirming that the organization is tax exempt and that contributions to it are tax deductible for federal income tax purposes.

Mission Critical

While the IRS designation recognizes an organization's intent to operate in the best interest of a cause, it does not evaluate the effectiveness with which the organization pursues its mission. To be successful, a charity needs

  1. A mission statement/strategic plan: Does the organization's mission statement clearly state whom or what it serves and what it hopes to achieve—and how it will execute its plan?

  2. Financial statement/Form 990: This form provides a financial snapshot of the charity's fiscal strength. The IRS requires most tax-exempt organizations to file a Form 990 annually, although there are many exceptions. Individuals can request copies of a charity's Form 990 directly from the charity or view them online at Foundation Center and other websites.

  3. Board of Trustees: The board oversees an organization's financial and legal responsibilities, manages its executives, and guides the vision that promotes the organization's cause.

Choose Carefully

While independent groups such as the BBB Wise Giving Alliance and Guide Star provide helpful information, it is ultimately up to you to judge whether a particular charity matches your giving objectives.

For Example: Only 2 of the 47 Native American charities are accredited by the Better Business Bureau.

Before choosing a charity, consider the organization's programs and whether they reflect its stated mission. Request copies of the organization's financial documents, including its annual report and a list of its board members. These should provide a clear view of the charity's operations and its management team. Also, spend some time browsing the charity's website to learn more about its activities, capital campaigns, and other unique features.

Most importantly—Ask questions! For many nonprofits, the best way to evaluate their operations is to simply ask representatives about their mission, programs, financials, and board of trustees.

In charitable giving, information is critical. By taking time to research your choices, you can rest assured that your generosity will be put to good use.

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