5 Questions to Ask Before Giving to a Nonprofit

With Thanksgiving in the rearview mirror and Christmas around the corner, now is the time that many citizens and businesses across the Magic Valley will show their generosity and donate to local charities and nonprofits.

“Nonprofits touch every part of our lives, they’re so critical to our community” said Janice Fulkerson, executive director of the Idaho Nonprofit Center. “Nonprofits provide books and education, clear trails, keep water safe, take care of the elderly and vulnerable, run after-school programs and do much more.”

Donating to a nonprofit this holiday season can also be a gift to yourself as you secure a last-minute tax break, and with so many worthy nonprofits operating in the Magic Valley, finding the right one to support during the holidays can be a challenge.

Before you give to just any nonprofit, it’s important to make sure the organization is using the money properly and using your donation to help the community.

With that in mind, here are five questions to ask before giving this holiday season.

1. Is the Charity Tax-exempt?

Before you decide to give, verify that the charity is a registered 501©(3) — a type of nonprofit — with the Internal Revenue Service. If you’re unsure of a charity’s status, check sites such as charitynavigator.org for reviews and guidestar.org for their 990 tax forms (required of nonprofits).

But, it’s also important to know the difference between tax exempt and tax deductible, especially for those who are looking for a break on their 2015 taxes.

“Tax exempt means the organization doesn’t have to pay taxes, but your contribution might still be taxable,” Fulkerson said. “Tax deductible means you can deduct from your federal income taxes next year. If that’s what’s driving your contribution – and any reason you donate is good – make sure it’s tax deductible.”

2. How will your Donation be Used?

“Many nonprofits have several different programs they’re working on, and it’s okay for money to be used for operations,” Fulkerson said. “But what amount is going to be used for operations? If it’s more than 25 percent, you should ask further questions.”

Using money to pay qualified staff is not a problem, Fulkerson said.

“If it’s going to staff, that’s good,” she said. “Especially if you’re paying people to deliver health care, hospice, medical services – you don’t want just anyone doing that. You need qualified people, and a good staff can do good things like help foster kids or deliver food to the needy.”

3. How Much Is the Executive Director’s Salary?

This question relates to the last question, and it’s important for nonprofits to be led by a competent executive director.

Lynn Hoffman, the former director of the Idaho Nonprofit Center, told the Times-News in a previous interview that it’s important to look at ratios.

“If the budget is $250,000 and the chief was making $150,000, that would be a real cause for concern,” Hoffman said.

According to the IRS, a nonprofit’s chief executive officer should receive a “reasonable” compensation. But the tax code remains vague on how much is unacceptable.

4. Does the Nonprofit Have a Board?

You should also ask if board members are volunteers and how many of the board members contribute to the organization, Fulkerson said.

It’s a red flag if board members are getting more than just reimbursements for travel to meetings.

“Individuals who participate on a nonprofit board of directors should do so for the public good, not for a salary,” Hoffman said.

5. How is the Charity Making a Difference?

Part of this goes back to knowing how your donation will be used, Fulkerson said. Your donation could stay local or could be used internationally.

“Make sure you know where your money is going,” Fulkerson said. “Lots of nonprofits serve your city, county or state, while others are used for things like helping kids with AIDS in Sierra Leone. Those are all fantastic, but you should know where the money is going.”

Another key thing to look for is if a nonprofit is working together with other nonprofits on a charitable program, which can maximize the impact without duplicating effort.

“Imagine four charities working together,” Fulkerson said. “What a great way to get the most from your donation.”

Of course the best way to know if the charity is making a difference is to volunteer some of your time as well as your money.

“People need to do their due diligence,” Fulkerson said. “If they have time, call up the staff, or better yet, volunteer and get insight on what happens on the inside.”