Five Myths about Charitable Giving to Know before You Give! - ERI Economic Research Institute

Five Myths about Charitable Giving to Know before You Give from ERI Economic Research Institute...

#1 – Most charitable donations go to help the poor.

In 2008, total charitable giving in the US was estimated at about $308 billion, actually down almost 6% from 2007, according to Giving USA. Of this total, only 9% went to Human Services charities. These are the charities that have been the first to report increasing needs for services and a slower growth in contributions in hard economic times.

The biggest proportion of 2008 contributions – 35% -- went to religious organizations. The second highest sector to receive contributions was education, at 13% of the total.

So the organizations that you most likely think of as charities are really getting only a small portion of charitable donations.

#2 – Most charities get grants from foundations.

Individuals contributed 75% of the US total giving in 2008. Most charities receive none or only a small proportion of their revenues from foundation and corporations. Looking at the national total of charitable giving, foundations gave 13% and corporations only 5%. Donations from individuals are the major source of revenue for most charities.

#3 – When tax time comes, I can deduct my donations.

Maybe. First, the contribution must be to an organization that has been given tax exempt status under Internal Revenue Code 501 (C )(3). Before taking that deduction, the IRS wants you to verify that status. ERI Economic Research Institute makes the basic information on IRS status and also copies of the Form 990, the information form filed annually by larger nonprofits, available at www.eri-nonprofit-salaries.com.

Additionally, you have to itemize your deductions, rather than take the standard deduction on your return. Only about 30% of US taxpayers decide to itemize their deductions. There are different rules if you are donating something other than cash as well as limits on how much of your income you can donate and take a deduction. Plus you may be required to keep records. Check out everything you need to know in IRS Publication 526, Charitable Contributions, available at www.irs.gov.

#4 – I should only give to charities that say all my money will be used for programs and services.

Think about it -- how will the charity locate the people it is trying to serve? Does the organization have an office, staff, managers, computers, telephones, etc.? Every organization has overhead and requires some general support to be able to operate. When a charity guarantees that all money will go to the needy recipients, the next question should be who is paying for necessary overhead? Obviously, you may not want to support huge executive salaries and plush offices, but some expenditures are clearly needed. Again, check out what the organization reported in various expense categories and for its programs and services on its Form 990, available at www.eri-nonprofit-salaries.com.

#5 – There are so many good causes that I should give donations to as many as possible, even though the amounts will be small.

There are over a million charities in the US and the number grows every year. It is also hard to distinguish which ones are the best, based on their names, professionally-designed mailers, attention-grabbing pictures, and aggressive phone solicitors. Before you give your credit card number to a telemarketer or put a check in the mail in response to a letter, check the Form 990 for the most accurate portrait of the organization.

Making a small donation means that the organization will be spending a large proportion of it processing the gift. A more effective use of your money is to carefully select five to ten charities and make larger contributions. Then you will be able to have a bigger impact on the organization and also keep track of its progress and accomplishments. This approach should also cut down on the additional solicitations you will receive during the year!

Then Choose the Right Charities

You work hard for your money – before making charitable donations, make sure the money you donate to charities is also working hard. Here are some tips to help you make the right choice on the charities to support:

• Have a personal connection. Give to an organization that you know and trust, or where someone you trust works or volunteers or has used a service or participated in an activity.

• Review the Form 990. Larger charities have to file an annual information return called IRS Form 990. You can find all the forms filed since 2000 at www.eri-nonprofit-salaries.com. Although the form looks daunting (It is a tax form!), you can easily review the lines that report total revenue (How big is the organization?), net assets (Is there money in the bank?), money spent on fundraising (Is it a high proportion of the money from direct public support?), description of activities, and compensation of the top-paid people.

• Check the charity’s website. The address for the website can be found on the first page of Form 990 and most charities have them these days. Does the information on the website match the information on the Form 990? Does it match the information that you have been told by the fundraiser that called or the letter you received?

• Visit the charity watchdog groups. There are several groups that rate charities – see Charity Navigator (www.charitynavigator,org), the BBB Alliance for Wiser Giving (www.give.org) or the American Institute of Philanthropy (www.charitywatch.org). Not all charities are rated and the watchdogs use different criteria, but what they say may help you interpret the Form 990 and inform your giving decisions.


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