Many people give to nonprofit organizations during the holidays. But with so many organizations in place, how should people decide which to support?
Start by considering the basic differences among some of the more common types of nonprofits:
501(c)(3) organizations are operated exclusively for one or more purposes: charitable, educational, fostering national or international amateur sports competitions, literary, preventing cruelty to children or animals, religious, scientific or testing for public safety.
501(c)(4) civic leagues and social welfare organizations are operated to promote social welfare to benefit the community. Net earnings must be devoted to charitable, educational or recreational purposes. The organization must provide evidence it is structured exclusively to promote social welfare by showing the organization will operate primarily to further in some way the common good and general welfare of the people in the community.
501(c)(6) business leagues constitute an association of people with a common business interest, the purpose of which is to promote that common interest and not engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are considered business leagues.
Now that you know the basic differences among nonprofit organizations, you can consider which organization you’d like to support. Conduct some research first and evaluate these criteria:
Do the mission and purpose correspond with your passions and beliefs?
How much of your funds go to programs versus management and administrative costs?
Is the location being served an important factor to you and your goals for your funding?
To better consider this information, obtain the appropriate documents. In general, tax-exempt organizations must make available for public inspection certain annual returns and applications for exemption and provide copies of such returns and applications to individuals who request them. Copies usually must be provided immediately in the case of in-person requests and within 30 days in the case of written requests. The tax-exempt organization may charge a reasonable copying fee plus actual postage, if any.
Many organizations’ Form 990, Return of Organization Exempt from Income Tax, is accessible through the website at www.GuideStar.org or on the organizations’ own websites.
Reviewing an organization’s exempt application and Form 990 will answer most of your questions. The application and Form 990 will state the organization’s mission and purpose. In addition, Form 990 for 501(c)(3) and 501(c)(4) organizations describes the three largest program service accomplishments for the filing year measured by expenses. Form 990 also provides details of expenses categorized by program services, management and general, or fund-raising for 501(c)(3) and 501(c)(4) organizations.
Watchdog groups have an acceptable percentage of funds dedicated to programs that range from 60 percent to 80 percent. Most donors want to insure a high percentage of their funds go to programs rather than salaries or frivolous spending.
Look at the salaries of the organization stated on Form 990 and decide if the amounts are reasonable based on the size of the organization and location. Calculate the percentage of donations supporting programs to ensure it’s within an acceptable range.
After finding a nonprofit organization that meets your charitable criteria and making a donation, yet another question arises: Is your contribution deductible on your federal income tax return?
Contributions to domestic organizations exempt under 501(c)(3) are deductible as charitable contributions on federal income tax returns. You must have a bank record or written communication from a charity for any monetary contribution under $250. For any single contribution of $250 or more, written acknowledgement from the charity must be obtained before you can claim a charitable contribution on your federal income tax return.
Contributions to 501(c)(4) or 501(c)(6) organizations generally are not deductible as charitable contributions for federal income tax purposes. They could be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer’s business.
To learn more about charitable contributions and how they could offer a tax savings to you, consult with a qualified professional to review your specific circumstances.