Making an investment in a charity or nonprofit, no matter the size, can feel daunting. There are so many organizations doing worthy work—how can you know where your donation will have the most impact? On top of that, nonprofits and charities occasionally run into the same issues as any other sector—mismanagement, fraud, and poor judgement. How can you be sure your dollars are doing what you intend?
Luckily, the growth of the digital age means a huge amount of information on charities and nonprofits is available online. With a few common sense guidelines and a few technical tools, you can do your due diligence easily and quickly.
Before we jump in, let’s take a minute to define some of the most common types of nonprofits and see how they relate to each other.
Nonprofit: A blanket term, “nonprofit” is a type of corporate designation, which indicates that the corporation’s net profit won’t go to benefit an individual, but will benefit the organization as a whole. This blanket covers dozens of organization types.
Charity: Charities are nonprofits whose purpose benefits the general public. So, not all nonprofits are charities, but all charities are nonprofits. Some people use the term “charitable organization” or “charitable nonprofit”—they’re all interchangeable with charity. These organizations tend to rely heavily on individual gifts to operate.
Foundation: A type of nonprofit corporation that makes grants to other organizations, institutions, or individuals for charitable purposes. While many do accept individual gifts, more often they have a large endowment that provides the bulk of their funds.
Now that who and what we’re talking about is a bit clearer, here are three easy tips to make the most of your charitable donations.
KNOW WHAT TO ASK
When you’re thinking about donating to a charity, there’s no one right answer. But you can prepare to do some thinking about how the charity meets your goals by keeping in mind a few key questions.
TRANSPARENCY: Is the organization open about its finances and financial health, with easy access to annual reports, statements and forms? Look for a copy of the organization’s annual report and/or 990 on its website. Check out the information they’ve chosen to disclose on Candid or Charity Navigator. Call their offices and ask for a copy of their audit or financial review. A nonprofit’s practices and willingness to share information about their finances will tell you just as much, if not more, than the actual content. It should never be hard to get a nonprofit’s basic financials. Be wary of any organization that hesitates to share them.
MISSION FIT: Does the charity on programs that fulfill the work you care about? This one is highly subjective, but arguably the most important—does the charity’s work matter to you? Annual reports, blog posts, and communications can tell you what kind of programming nonprofits are doing and how it relates to your passions.
TYPE OF NONPROFIT: Are donations to the organization tax-deductible? Not all types of nonprofits qualify for the tax-deduction status. You can check the Internal Revenue Service to find out. Generally, 501c3 donations will be tax deductible.
IN CASE OF EMERGENCY, LOOK BEFORE LEAPING
It’s tempting when there’s an emergency to donate to the first charitable organization that contacts you. It is more important to give money where needed than to who asks first.
If you are donating in an emergency, the Federal Trade Commission has a handy checklist that will help you avoid scams as you’re searching on the internet, responding to phone solicitations, or following up on a friend’s charity recommendation.
CHECK THEIR ACCREDITATIONS
Websites like Guidestar by Candid invite nonprofits to increase their transparency through self-reporting. Check if your charitable nonprofit has a seal of transparency, or other similar accreditation.
Here in Minnesota, charitable nonprofits can undergo an even more in-depth self-reporting process with the Charities Review Council. Nonprofits can elect to start the process by reporting on more than 90 benchmarks that involve best practices and policies around governance, fundraising, financials, and more. Charities Review Council then reviews the information to ensure the organization adheres to best practices for the nonprofit sector. The Charities Review Council website lists organizations that have successfully completed the process, undergone review, and received accreditation.
Being confident in your personal philanthropy doesn’t have to be complicated. By keeping these resources handy, you can start growing your impact—whether you’ve got a nonprofit already in mind, or you’re reacting to a disaster. Thanks to the wealth of resources online, it’s easier than ever to start investing in changing the world.
