The rush is on by many charities to get your dollars before the close of the tax year. You might find it instructive to learn how they spend your money and how much of your charitable donation actually goes to the programs that the charity says it supports. How much is siphoned off to cover administrative, fund-raising, and other costs? There are a number of organizations that track their activities. The data for each American charity are derived primarily from IRS Form 990 or 990EZ, an annual report filed by nonprofit organizations. The following organizations are highly respected.
The Better Business Bureau's “For Charities and Donors” website is a very useful source of information on hundreds of non-profit organizations. Click on “Check out a business or charity” for a factual report of the organization’s activities and finances. While not a rating system, it gives donors the information they need to make giving decisions based on their personal values and preferences. The Bureau recommends that charities spend at least 65% of the funds raised on the purposes for which the money was given. The March of Dimes, for instance, spends 75% of the funds it raises on programs, 15% on fund raising, and 10% on administrative costs. Its CEO earns $641,760 in compensation. Scroll down to the pie chart to find this summary of their finances.
Charity Navigator says it works to advance a more efficient and responsive philanthropic marketplace by evaluating the financial health of over 5,500 of America's largest charities. Type the charity name in the search box, and then click on the underlined name in the box that pops up. Esquire magazine said a few years ago that "visiting Charity Navigator is one of the ways to improve the world." More than 3 million donors will use this site in the coming year to decide how to distribute their billion or more dollars.
It shows that Doctors without Borders, for instance, spends 85.4% of the money it raises ($168 million in 2010) directly on its programs. The American Cancer Society spends 71.6%. And the American Red Cross is even more efficient. It puts 92.1% of funds raised into programs (over $3.5 billion last year). However, the Firefighters Charitable Foundation spent only 10.2% of the funds it raised on its programs. According to the organization's Audited Financial Statement, fund raising costs took 84.5% of contributions. The other 5.3% was for administrative costs.
Another site worth looking at is GuideStar. Its database contains information for about 1.7 million nonprofits. GuideStar offers several levels of access. A simple search for users who want to verify a nonprofit's legitimacy, learn whether a contribution will be tax deductible, view a nonprofit's recent Form 990, or find out more about its mission, programs, and finances is available at no charge to users. Registration for basic access is required, but free. Just log in and start searching. Access to levels for more in-depth reports on individual charities can cost from $300 to $1,000 a year.
It is worth your time to find out if your contribution is being used wisely and efficiently—and how much of it actually goes for the purposes you intend. If the organization you contribute to raises $15 million and has a CEO making $1.5 million annually, you may want to find a better way to help feed poor people.
If your charity is not listed by these sources, and you have no personal knowledge of its programs, be wary.
The Internal Revenue Service provides information about organizations that qualify to receive deductible contributions, but does not rank them by their effectiveness in providing services. The IRS says that you can deduct your contributions only if you make them to a qualified organization. To become a qualified organization, most organizations other than churches and governments must apply to the IRS.
You can also ask any organization whether it is a qualified organization, and most will be able to tell you. You can also check IRS Publication 78, which lists most qualified organizations. The online version is more up to date than the printed publication.
You can call the IRS to find out if an organization is qualified. 1-877-829-5500. (For TTY/TDD help, call 1-800-829-4059.)
There has been some discussion recently in Congress about changing the amount you can deduct for charitable donations. Read more about “Options for Changing the Tax Treatment of Charitable Giving,” testimony before the Committee on Finance, United States Senate, October 18, 2011.