"There are literally one million charities in America today. That's a lot of different organizations vying for our attention," says Sandra Miniutti, Vice President of Marketing for Charity Navigator, a website that independently evaluates nonprofits. To be sure your donation makes the largest impact, here are seven important questions to ask:
Think hard about what matters to you and what change you want to see. Then find a charity that does exactly that. The key is to be specific—very specific. If you want to help cancer patients, picking a popular charity with 'cancer' in the name isn't enough. "What work are they doing toward that cause? Is this a large national organization conducting research towards an eventual cure, or a small, community-based charity helping patients and their families?" says Miniutti. "Some donors feel burned on the back end after giving to a charity that wasn't exactly their thing. They feel misled, but it wouldn't have taken long to ferret that information out."
Heartwarming stories can draw you to a charity initially, but they aren't a great way to measure philanthropy. Demand transparency from any charity that gets your donations. "At a minimum, you should be able to go on their website or give them a call, or interact with them in person," says Miniutti. Charity: Water has an interactive map and videos of their global projects. At DonorsChoose, you can support a specific teacher project (new textbooks, iPads for the classroom) and hear directly back from students with letters, photos, or videos. If a nonprofit can't or won't share performance data, how can you trust them with your donations?
Most of a charity's funds should be spent on programs and services, but there are always operating costs to consider. "Large, established charities spend at least 75 percent of their budget on programs, with 25 percent going to overhead," she says. "Newer, smaller charities aren't that efficient right out of the gate." A ratio of 50/50 or worse is a major red flag.
Ask yourself, who steers the ship? Make sure the organization has a diverse board, with built-in checks and balances. "You can get that information by looking at their website or their Form 990—that's the tax return they have to file annually with the IRS," she says, which is accessible on charitynavigator.org. (You could also ask the organization directly.) Knowing how many independent voters are on the board can shield your donation from improper oversight.
Writing a check isn't the only way to contribute. "Charities, especially smaller ones in your own neighborhood, crave hands-on support," Miniutti says—and not just making care packages and licking stamps (though that's important work, too). A talented young person, for example, can volunteer at a very high level. "If a nonprofit doesn't have a big, fancy marketing department or an in-house lawyer, those skill sets are a huge help."
Many people with significant means ask themselves, Should I start my own charity? The answer is probably not. In a crowded marketplace, do you want your foundation to be number 1,000,001? Keep in mind that, "giving has pretty much stalled out at two percent of GDP for the last 40 years," says Miniutti. More charities are fighting over the same cash, the cost of starting a new nonprofit is considerable (and let's not even get into the reams of paperwork). If you want to make a significant gift and no charity aligns exactly with your goals, Miniutti suggests approaching an established fund with similar goals to start your own program under their umbrella. "Then if it really flourishes, you can spin off on your own," she says.
If you still can't make up your mind, there are places to make a gift—and take advantage of the tax deduction—and delay a final decision on where the money goes. By contributing to a donor-advised fund with Fidelity, Vanguard, or a community foundation, you get your tax deduction before you make up your mind. "It's kind of like a charitable bank account," says Miniutti. When you contribute, the tax break kicks in right away, but you can take your time—and grow your contribution, tax-free—deciding how you want to parcel that money out. Though time limits vary from fund to fund, the only thing the money can be ever used for is philanthropy.