Non-profit organizations hold a very unique status in society.
Unlike corporations, non-profits can avoid payment of federal income tax–and in most cases state tax — if they organize and operate to promote certain causes, which include "charitable, religious, educational," among others. Now, with only days left in the 2012 tax year, many non-profits will make last minute requests for donations because donors also receive a tax benefit — they can deduct the value of the money or property made to the organization.
However, donors unfamiliar with the work of an organization should first conduct a little research to ensure that their money goes to the right place and for the IRS approved use.
All non-profits must keep strict records of how they raise money, which for most comes from donations. In some cases, their funds will come from an unrelated business income, which can sometimes be taxed.
Still, to avoid being scammed by organizations that claim to have 501(c)(3) status, follow these steps:
- Search for the charity in the IRS site: http://www.irs.gov/app/pub-78. If the organization claims to be a 501(c)(3), they will be on this list. However, some organizations might not appear on the list because they are sponsored by another group. If the other group does appear on the IRS list, then it would qualify.
- In the organization's website, under the "About Us" tab check to see how much information they have. It's customary for non-profits to include their tax identification number, a list of their Board of Directors — who have certain duties and responsibilities — annual reports or their 990 tax forms they must file annually. Not every non-profit will list everything, but the exclusion of all of these should raise red flags. Remember: anybody can make a website.
- Check third-party resources like Charity Navigator or Guidestar. These websites offer a wealth of independent information. Charity Navigator evaluates and rates the financial health of organizations to give you a sense of how well they spend their donations. Similarly, Guidestar gives potential donors access to more in depth tax information.
- Don't donate impulsively unless you know and trust organization well. Don't feel bad saying "no" or "not today." It's better to be safe then sorry.
So before the year ends, if you have favorite non-profits, give them a gift, too! They will appreciate it — as will you when you file your taxes.