21 February 2007

How to be a smart donor

So, how can one donate without feeling ripped off? Here’s some easy hints:

Find the organization’s website. Websites of nonprofits are directed towards donors, and provide a great deal of information. Usually they provide some basic financial information, the mission and vision of the organization, and current and past projects.

Know if the nonprofit is tax-deductable [501(c)3] or not. This may sound confusing, but many nonprofit organizations aren’t actually tax-deductible charities. The term 501(c)3 just refers to the IRS code that means tax-deductible. For example, The Sierra Club is not a 501(c)3 organization because though it is an environmental group, it lobbies hard enough to qualify as a political organization. Almost every pamphlet and website a tax-deductible organization has usually mentions that they are tax-deductible or says 501(c)3 somewhere on it, but don’t presume.Also, always ask for a receipt for tax-deductible donations to anybody. Except the bell-ringing Santa at Christmas.

Go to Guidestar.com Though Guidestar is designated towards investors, they provide vital information of the NGO from a business perspective, including detailed financial information. Trial subscriptions to use the website are free.

Ask people you know: Though not everyone knows a Peace Corps volunteer, lots of people have been exposed to high-quality, and often obscure but important organizations.

Know how to read basic financial information of nonprofits. Though there isn’t anything complicated about the financial data, it’s important to know how it measures up to other organizations. Administrative costs are roughly 10-12% of any nonprofit’s costs. Anything above 15% requires close scrutiny and may be the result of overpayed personnel or wasteful purchases. Also look for strange categories that should be considered administrative costs, such as retraining or travel. Other categories include labor and capital costs, and can help you figure out better if more of an organization’s costs are, say, in buying people housing supplies or retraining them.

Look at previous projects for success or failure. While many nonprofits will remind you that a 90% failure is a 10% success, look for past documents or programs and really try to compare numbers – or just outright ask about recent failures or problems. Most nonprofits would rather answer an uncomfortable question than give up a chance at your donation.

Visit offices. If it’s a local nonprofit, go visit the office. Flat-screen monitors or a basement office are the easiest giveaways to know where your money’s going.

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I am required to mention that this blog doesn´t reflect the opinions of the Peace Corps.