Tips on Charitable Giving

Faced with ever-rising costs, the loss of government funding, and an increasing demand for their services, charities are responding by asking for larger contributions from more donors--and they're asking more often than ever before. Donors would do well to plan their giving and demand accountability of the organizations soliciting their support.

More than 80% of the money raised by charities in this country comes from individuals. To help these generous donors make wise giving decisions, the Christian Legal Society has reproduced the following tips from the Council of Better Business Bureaus (CBBB) on charitable giving:

The Basics

  1. Do not give cash; always make contributions by check and make your check payable to the charity, not to the individual collecting the donation.
  2. Keep records of your donations (receipts, canceled checks, and bank statements) so you can document your charitable giving at tax time. Although the value of your time as a volunteer is not deductible, out-of-pocket expenses (including transportation costs) directly related to your volunteer service to a charity are deductible.
  3. Don't be fooled by names that look impressive or that closely resemble the name of a well-known organization.
  4. Check out the organization with the local charity registration office (usually a division of the state attorney general's office) and with your Better Business Bureau.

Mail Appeals

  1. Mail appeals should clearly identify the charity and describe its programs in clear and specific language. Beware of appeals that bring tears to your eyes but tell you nothing of the charity or what it's doing about the problem it describes so well.
  2. Appeals should not be disguised as bills or invoices. It is illegal to mail a bill, invoice, or statement of account due that is in fact an appeal for funds, unless it bears a clear and noticeable disclaimer stating that it is an appeal and that you are under no obligation to pay unless you accept the offer.
  3. It is against the law to demand payment for unordered merchandise. If unordered items such as key rings, stamps, greeting cards, or pens are enclosed with an appeal letter, remember you are under no obligation to pay for or return the merchandise. If payment is requested, inform your local BBB. In the BBB's experience, unordered merchandise can mean high fund raising costs.
  4. Appeals that include sweepstakes promotions should disclose that you do not have to contribute to be eligible for the prizes offered. To require a contribution would make the sweepstakes a lottery through the mail, and it is illegal to operate a lottery through the mail.
  5. Matching check appeals are not subject to any particular legal requirements. Donors should keep in mind, however, that they do not have to return the checks if they don't contribute. The checks do not have any real value in and of themselves.

What to Do About Unwanted Mail

  1. Many individuals have written to the CBBB complaining about the flood of direct mail they receive from charitable organizations. Most of the writers are seeking advice on how to have their names removed from the mailing lists of the charities sending the appeals.
  2. The easiest solution to the problem of unwanted mail is to decide in advance which charities you want to support and discard appeals from other groups. Don't feel guilty about not supporting all of the groups writing to you; they do not expect a donation from every person they solicit.
  3. If you would like information about other ways to handle unwanted mail, write to the Philanthropic Advisory Service of the Council of Better Business Bureaus.

Telephone, Door-to-Door, And Street Solicitations

When you are approached for a contribution of either your time or your money, ask questions, and don't give a donation until you're satisfied with the answers. Charities with nothing to hide will encourage your interest. Be wary of their reluctance or inability to answer questions.

  1. Ask for the charity's full name and address. Demand identification from the solicitor.
  2. Ask if your contribution is tax deductible. Contributions to tax exempt organizations are not always tax deductible. (See the next section of this brochure for an explanation of the terms "tax deductible" and "tax exempt.")
  3. Ask if the charity is licensed by state and local authorities. Registration or licensing is required by most states and many communities. However, bear in mind that registration in and of itself does not imply that the state or local government endorses the charity.
  4. Don't succumb to pressure to give money on the spot or allow a "runner" to pick up a contribution; the charity that needs your money today will welcome it just as much tomorrow.
  5. Watch out for statements such as "all proceeds will go to the charity." This can mean that the money left after expenses, such as the cost of written materials and fund raising efforts, will go to the charity. These expenses can make a big difference, so check carefully.
  6. When you're asked to buy candy, magazines, card, or tickets to a dinner or show to benefit a charity, be sure to ask what the charity's share will be. You cannot deduct the full amount paid for any such items, as the IRS considers only the part above the fair-market value of the item to be a charitable contribution. For example, if you pay $10 for a box of candy that normally sells for $8, only $2 can be claimed as a charitable donation.
  7. Call your local BBB if a fund raiser uses pressure tactics such as intimidation, threats, or repeated and harassing calls or visits. Such tactics violate the CBBB's recommended Standards for Charitable Solicitations.

Tax Exempt Doesn't Always Mean Tax Deductible

"We are tax exempt" does not necessarily mean that contributions are tax deductible. "Tax exempt" simply means the organization does not have to pay taxes. "Tax deductible" means the donor can deduct contributions to the organization on his or her federal income tax return. The Internal Revenue Code defines more than 20 different categories of tax exempt organizations, but contributions to only a few of these categories are also tax deductible. Principal among "tax deductible" groups is the 501(c)(3) category, broadly termed "charitable" organizations.

To obtain tax exempt status under Section 501(c)(3), an organization has to file documents with the Internal Revenue Service that prove it to be organized and operated for the charitable purposes specified by the Internal Revenue Code. The IRS looks at these documents only in terms of the code; it does not "approve" specific charities or judge other aspects of the charity's efficiency. Organizations receiving 501(c)(3) status are those that the IRS has considered charitable, educational, religious, scientific, or literary; those that prevent cruelty to animals: and those that foster national or international amateur sports competitions.

When the IRS rules positively on an application, contributions to the organization are tax deductible as charitable donations for federal income tax purposes. The group receives a "Letter of Determination" formally notifying it of its status. A copy of this letter should be available from the organization as verification of its tax exempt status. (Older charities may have a 101(6) ruling, which corresponds to section 501(c)(3) of the 1954 Internal Revenue Code.)

Generally, contributions to organizations tax exempt under sections 501(c)(4), 501(c)(6), and other sections of the Internal Revenue Code are not deductible as charitable donations, but might be deductible as business expenses. If you are unsure about an organization's tax status, or would like more information about tax exemptions and deductions, contact your local IRS office.

Additional Information

From those charities to which you plan regular and/or substantial gifts, request a copy of the latest annual report, a list of board members, and the group's latest financial statements. This information should give your a clear idea of what kinds of programs the charity operates, how and where these programs are carried out, who governs the charity, how much of your dollar is spent on the charity's programs, and how much is spent on fund raising and administrative costs.

The financial statements should show categories of income and expenses so you can clearly see the source of the charity's money and how funds are used.

Expenses are generally broken down into three main categories: program services, management and general, and fund raising. Program service costs could include research grants made to scientists, salaries of doctors and nurses working in overseas missions, food supplies sent to feed starving children, or public information pamphlets explaining a disease to patients. Management and general costs are expenses associated with the day-to-day administration of the charity. Office supplies, rent, salaries of administrative personnel, and fees paid to accountants and lawyers are typical management and general expenses. Fund raising costs might include the printing and mailing of appeals, advertising in magazines and newspapers, and fees paid to professional fund raisers.

In evaluating the financial statements of the charity, compare the charity's expenses to its income. In general, the Council of Better Business Bureaus' Standards call for 1) at least half of the charity's total income to be spent on programs, 2) at least half of public contributions to be spent on the programs described in appeals, 3) no more than 35% of contributions to be spent on fund raising, and 4) no more than half of the charity's total income to be spent on administrative and fund raising costs.

In applying these Standards, the Council of Better Business Bureaus considers special circumstances that might make a charity's expenses reasonable even though they do not meet the percentage guidelines. For example, a new organization understandably will have higher fund raising costs than an established charity.

From a new organization that does not yet have a financial statement or annual report, the CBBB recommends that you request a budget and information about the charity's funding goals and proposed programs.

For further assistance, contact the Philanthropic Advisory Service of the Council of Better Business Bureaus.

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