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Being An Informed Donor: The Realities Of Charity

For charities, the recession has posed extraordinary challenges. Social services organizations, in particular, have faced mushrooming demand as unemployment, family problems, homelessness, and other human symptoms of the downturn all have increased sharply. At the same time, corporations, foundations, and individual donors, feeling the economic pinch, have cut back on their support. According to Planned Giving Today, a monthly newsletter, charitable donations fell by 5.7% in 2008, the steepest drop during the 53 years the foundation has published its annual reports. Two-thirds of all public charities experienced a decline in contributions, and that trend is expected to continue when the figures for 2009 are tallied.

You may have been compelled to limit your own philanthropic contributions, and even if you’ve found a way to continue giving, it’s more important than ever to make sure your dollars are having maximum impact. You need to know about the organizations you support—how they’re using your money, how efficiently they’re run, and whether they’re living up to their missions. In order to get a tax deduction for your gifts, you also need to have a proper acknowledgement from the charity and adhere to the IRS’s recently toughened requirements. These are the new realities of charitable giving.

The internet has greatly simplified the process of finding a charity, learning about its mission, and doing due diligence before you contribute., for example, maintains a directory with information about almost two million charities recognized by the IRS. You can search the database for a particular organization or use keywords, location, and other criteria to look for groups with a specific mission. Type in “homeless” and click Arizona, for instance, and you’ll get a list of 210 organizations.

Guidestar and other sites provide comprehensive information about a charity’s activities. Charity Navigator ( evaluates the financial health of more than 5,400 of America’s largest charities, while the Better Business Bureau ( offers a wealth of resources for both charities and consumers. Its “Wise Giving Guide” summarizes the results of recent evaluations of charitable organizations and provides tips on gift-giving and charitable accountability issues. The American Institute of Philanthropy operates a website ( that grades more than 500 public charities and focuses on special issues such as compensation for charity executives, top-ranked groups, and “hot topics.”

With all of this information literally at your fingertips, it’s easy to dig deeper. Find out how much of a group’s budget goes to its programs and how much is earmarked for fundraising, other administrative costs, and overhead. (Most organizations should allocate at least three-quarters of their spending to programs.) Look at a charity’s annual reports to evaluate its finances and its commitment to its mission. Be wary of those that have consistently operated at a loss. You can read more financial details in the Form 990 every charitable organization must file with the IRS. Look for a copy on the group’s website or call to request one.

Most major charities have adopted a “Donor Bill of Rights” that several philanthropic associations jointly created. Available at Charity Navigator and other internet sites, the document lists 10 things you should expect from any reputable group. This includes information about the group’s board, whether it uses paid solicitors to ask for donations, and a promise to treat donors with respect. These guidelines give you one more tool for taking stock of an organization you’re considering.

Once you’ve selected a charity and made a donation, you need to make sure that you have the documentation needed to claim an income tax deduction. The Pension Protection Act of 2006 tightened the rules for substantiating monetary gifts, and you now must have a written record of any contribution. If the IRS asks, you need to be able to show a bank statement or a written communication from the charity verifying your gift. This should show the organization’s name, the date of the contribution, and its amount. This requirement now applies to all monetary contributions, even small gifts given in cash.
Charities need your help now more than ever. If you understand the realities of charitable giving, you can deliver your money to deserving groups that will put your generosity to good use.

This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.


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