4 tips for smart donating

This post is from Brandon Ballenger at partner site Money Talks News. 

The number of charitable organizations in the U.S. has steadily grown over the past decade to more than 1.2 million, according to a Giving USA Foundation (.pdf file) report.

But not every charity deserves that label -- the IRS regularly revokes the 501(c)(3) tax-exempt status of organizations that fail to disclose their finances, or that it believes aren't acting in the public interest. According to the same report, the government dropped 275,000 nonprofits from the list in June.

Individual Americans donated more than $211 billion to charities last year, and are expected to give a similar amount by the end of 2011. But how do potential donors make sure the money goes to a charity that will make good use of it?

In the video below, Money Talks News founder Stacy Johnson takes a look at tips for smart donating. Check it out, and then read on for more details.

The charity in the video above, a homeless shelter, spends about 80 cents per dollar on services. That's actually pretty good -- CharityWatch's list of top-rated charities only includes those that "spend 75% or more of their budgets on programs, spend $25 or less to raise $100 in public support, [and] do not hold excessive assets in reserve."

Administrative overhead, including advertising and executive pay, often eat up much larger percentages of a charity's budget. Last year, Charity Navigator looked at charity CEO pay and found the CEO of the Scripps Research Institute makes more than a million per year. Others appoint family to high-paying board positions, and some spend your money on raising more with telemarketing campaigns.

Many legitimate do-gooders may not make the most effective use of your donation, and there are plenty of scams out there too. When it comes to charity, here's how to run a check before you sign one.

1. Read the mission statement. Charities sum up their cause and goals with a mission statement that should explain the reasons behind their activities. The statement should be on the organization's website or promotional materials, and if you don't feel it matches your own causes or what the organization actually does, move on. Be skeptical of any group without a mission statement -- that doesn't speak highly of their organization skills, or how they make spending decisions.
2. Look at money spent on the cause. It's one thing to say you want to help people, and another to do it. You can request an organization's financial report (called Form 990) and dig through it yourself to see if the walk backs the talk. Many are online and searchable in the Foundation Center's 990 Finder. There are also sites that have already done the work for you, like Charity Navigator, CharityWatch, GuideStar, and the Better Business Bureau. These kinds of sites also feature donor reviews to give you more perspective.
3. Review charity status. Sometimes charities get dropped off the IRS' list. Aside from the tax deduction implications, and as Stacy said in Is Your Charity Still Charitable? How to Find Out, "losing tax-exempt status is a definite red flag and something you’d want explained." You can find the IRS list of organizations that lost 501(c)(3) charity status online.
4. Give them a call. Sometimes scammers use the good name of legitimate charities to swindle money, by either copying it or taking a similar name. Never feel rushed or pressured into donating at the door, the red light, the checkout counter, or even over the phone. You can always donate later, after you've found official contact information from another source and checked the group out. That's how Stacy once found a scammer using collection boxes in local stores -- they not only copied a real charity's name, but also its phone number. When he called, Stacy found out they didn't use boxes -- and weren't even fundraising in his state.

If you're not sure about a particular charity, chances are there's another one doing similar work. For instance, if you want to support veterans, here are five highly rated military/veteran charities from Charity Navigator:

• Hope For The Warriors
  
• National Military Family Association
  
• Armed Services YMCA
  
• Veterans of Foreign Wars National Home for Children
  
• Mercy Medical Airlift
  

And here are five cancer-fighting charities with an A rating on CharityWatch:

• Cancer Care
  
• Cancer Research Institute
  
• CureSearch
  
• Memorial Sloan-Kettering Cancer Center
  
• Prevent Cancer Foundation
  

Both sites have lists of many other categories, from children to animals. Picking from top-rated charities is the quickest way to make sure your money goes to a good cause.

More on Money Talks News and MSN Money:

• Are you better off than 5 years ago?
• 7 gift ideas that help charities
• Christmas for less than $100
• 5 tips to deducting holiday giving
• Can you beat your state's average credit score?
• When you donate to a charity, are you donating to a bank?