Tips for Making Informed Giving Decisions

by Linda M. Czipo

Every day, our lives are touched in some way by the work of charitable organizations. Charities play an essential social and economic role in making our communities attractive places to live, work and grow.

While a slow economic recovery and rising demand for charitable services mean that charities need donor support more than ever, donors may become overwhelmed by the various requests for contributions. For donors trying to sort through these appeals, wise giving choices have never been more crucial.

You don’t need to have an elaborate plan to “do good,” but you can take steps that will help you to be confident in the decisions you make.

  • Think about why you want to give – whether to support a cause you care about; “give back” to society and support the public good; qualify for a tax incentive; respond to a friend or colleague involved in a charity; or any combination of these or other reasons.
  • Try to come up with a budget to help determine how much you can (or would like to) give. Spacing out gifts during the year may boost your overall giving capacity.
  • Don’t be shy about checking up on a charity. Check out its website, social media or other communications, or ask them to send you more detailed information. You can look into a charity’s mission, programs, recent accomplishments, governing board, personnel, finances and more. Most charities realize that an educated donor is often their best friend.
  • Don’t be pressured into donating immediately over the phone or online. High-pressure pitches and coercive approaches are a sign of trouble. Ask the caller if they are being paid to solicit on behalf of the organization; and if so, how much of your gift will go to the charity vs. the paid solicitor.
  • Ask if the group is registered with its state attorney general’s office or secretary of state. Most states have some form of registration requirement for charities and fundraisers. In New Jersey, charitable registration and fundraising laws are enforced by the Division of Consumer Affairs. Many states have searchable databases of registered charities. Online databases can be finicky, so if your search comes up empty, check for typos or standard abbreviations, or call the state charity registration office to be sure.
  • Crowdfunding campaigns and online portals such as KickStarter or GoFundMe might be run by individuals or causes that may not be associated with a charitable organization. Be sure to “vet” these campaigns carefully before you give, and keep in mind that donations to individuals are not tax-deductible (see the next item).
  • If tax incentives are a consideration, be sure that the organization is recognized by the IRS as a 501(c)(3) organization. (Remember that you must itemize on your tax return in order to be able to take a deduction for charitable contributions.) You can check online for an organization’s 501(c)(3) status by searching the IRS EO Select Check at www.irs.gov, or by searching third-party sites such as www.guidestar.org. If you can’t find the charity at first, try different spelling variations or ask the charity directly for a copy of their IRS determination letter. If you’re considering more sophisticated giving mechanisms such as planned giving (through your will), gifts of property, etc., be sure to consult with your financial advisor or a knowledgeable attorney.

Financial information, while helpful, shouldn’t be the only consideration for giving.

  • Is the organization making an IMPACT? This is the most important question to consider when looking into a charity. Take a look at what the organization has done, what kinds of impact it has had in fulfilling its mission, its successes and — yes — even failures, as these can provide important lessons for program improvement. For a newer organization, find out how it plans to execute its programs and evaluate its progress.
  • Resist the temptation to rely too heavily on ratios that compare the percentage of dollars spent on program vs. administration (also called “management and general”) or fundraising. Except in extreme cases where the amount spent on programs is negligible, these ratios are of limited value because they reveal nothing about the effectiveness of an organization’s programs. Whether an organization is spending 65% or 75% on programs won’t matter much if those programs are ineffective in accomplishing its charitable purpose.
  • For in-depth financial information, you can ask to see a charity’s Form 990 information return, or you can look it up on a third-party site such as www.guidestar.org . If understanding a Form 990 is new to you, the Nonprofit Coordinating Committee of New York offers an excellent detailed guide.
  • When comparing charity appeals or finances, compare apples to apples. For example, don’t compare a large health organization with a community theatre. A smaller, startup organization is likely to have higher fundraising costs before it gets up to scale. Fundraising methods such as direct mail or phone appeals can often seem less efficient than a single grant from a foundation or corporation; but that doesn’t necessarily mean they are bad. Different types of charities may need to employ different methods in order to be successful. The key is ensuring that the fundraising is done honestly and ethically, and that the organization is effective in pursuing its mission.
  • Salaries are a necessary part of most charities’ work. A common misconception is that all salaries are administrative costs, or that funds spent on salaries are a diversion from charitable work. In fact, except for the smallest organizations, most non-profits employ staff to pursue their missions, and this work often requires specialized training, education and expertise. Non-profits need to pay their employees adequately in order to be effective in reaching their charitable goals. Federal law requires that compensation be reasonable, and charities have to describe on their Form 990 how compensation decisions are reached.
  • While everyone wants to see program purpose dollars maximized, bear in mind that administrative and fundraising expenses are an indispensable part of running an organization. They help to ensure efficiency, accountability and compliance with the law; can help an organization by increasing awareness of and support for its activities; and can lead to stronger operations and sustainability through the building of a more stable, diversified funding base.
  • With only limited exceptions such as all-volunteer organizations, most established charities have to spend something on fundraising and administration, so be wary of organizations that report having no fundraising or administrative costs. If either of those figures is reported as zero for anything except a very small or newly formed organization, ask why.
  • It’s customary to expect reputable for-profit businesses to invest a reasonable amount in their own capacity to ensure that they are meeting customer needs and investing in their long term viability. For a charity to pursue its mission effectively, it needs to be able to do the same. Activities such as strategic planning, staff training and program evaluation produce better, more effective organizations, and they should be expected and encouraged.

Other ways to help besides money

  • In some cases, noncash donations (computer equipment, furniture, clothing) can be valuable to an organization. Most of these items should be in new or nearly new condition to be useful, so check with the charity to be sure. Be aware that the IRS has special rules governing deductibility of donated property, and there are additional requirements concerning donated vehicles.
  • Consider volunteering your time in some capacity, or perhaps joining a committee or even serving on a charity board (board service is an important commitment, so be sure you understand the responsibilities involved). Your personal involvement will help you gain new insights into the organization and strengthen your relationship with it.
  • Talk up the charities you care about! Tell your friends and colleagues so that they might also donate, become involved or become more familiar about the charity’s area of focus. Your passion can inspire others to aid the cause.

Finally, while the overwhelming majority of charities operate honestly, legally and ethically, there are some scam artists who masquerade as legitimate charities and take advantage of donors’ good will. Most state attorney general offices offer information to help ensure that your gift goes to a reputable organization. The NJ Division of Consumer Affairs publishes a charitable giving brief as well as other information. If you suspect a charity is engaged in fraudulent activity, you can contact your state attorney general’s office to find more information or file a complaint.

Feel free to share these tips with your non-profit colleagues, donors and board members. A slightly longer variation of this post is available as a PDF at www.njnonprofits.org/InformedGivingTips.pdf .

Do you have tips to share with donors and charities? What would YOU add to this list?

 

Linda M. Czipo is executive director of the Center for Non-Profits, New Jersey’s statewide umbrella organization for the charitable community.  Through advocacy, public education, technical assistance and cost-saving member services, the Center works to build the power of New Jersey’s non-profit community to improve the quality of life for the people of our state. 

2015 NJ Non-Profit Conference - December 2, 2015

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