Tips on Charitable Giving
A Publication of the Philanthropic Advisory Service
of the Council of Better Business Bureaus
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 Council of Better Business Bureaus (CBBB)
offers the following tips 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.
Deceptive invoices are most often aimed at business firms rather
than individuals. Contact your local BBB for detailed guidelines
on how to handle appeals disguised as bills or invoices.
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
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.
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.
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.
Tips on Charitable Giving
Copyright 1986
Council of Better Business Bureaus, Inc.
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