Do the right thing, the right way
You have a generous spirit, a year-end deadline and a million charities competing for your money. What's a donor to do?
(Money Magazine) -- You want to be generous this holiday season. But before opening your checkbook, take these steps to ensure you gift is all it can be.
Vet the group
Know what you're supporting. You'll find scores of charities devoted to cancer, but how do you know which works on your particular interest, be it research, patient care or something else?
Visit a charity's Web site and look for descriptions of its programs and achievements, or ask for an annual report. Better yet, stick with local groups whose work you can see or ask knowledgeable friends for suggestions.
Eyeball the numbers. To be confident that the charity will spend your gift wisely, check the financials. At a minimum, 65 percent of expenses should go toward programs, not fund raising and overhead. If you can't get that figure from the charity, download its Form 990 tax return at guidestar.org or turn to an outside expert (see "Check with Watchdogs" below).
But don't obsess over the numbers. Beyond that 65 percent hurdle, a higher program ratio isn't always better. Nonprofit accounting is easy to manipulate. What's more, a 2004 study of administrative costs at nonprofits by the Urban Institute and Indiana University found that under-spending on overhead was more common than profligacy.
Check with watchdogs
See what the pros say. At give.org, the Better Business Bureau's Wise Giving Alliance reports whether nearly 900 nonprofits meet financial, governance and fund-raising standards.
The American Institute of Philanthropy analyzes the books at 500 charities. To order those ratings, send an e-mail to email@example.com or call 773-529-2300.
Charity Navigator posts star ratings based on financial results at charitynavigator.org.
Piggyback on other donors. If you see that the charity is funded by a big foundation like the Ford, Gates or Hewlett, you can figure that the group had to meet some tough financial criteria.
Be tax smart
Make sure you'll get a tax break. Unsure it's a charity? Visit the IRS Web site (IRS.gov) and search for Publication 78. At that page, look up the charity to see if your gift is tax deductible.
Keep records. You'll need a receipt for any cash donation of $250 or more. (Next year you'll need a record of every gift.)
Donate goods with value. Want to get a tax break for the clothes you stuffed in the bin at the mall? This year you'll need an appraisal for any single write-off worth more than $500 (vs. $5,000 before). Less valuable items that you gave away after Aug. 17 must be in "good" condition or better.