How to Tell If a Charity Is Legitimate: Tools and Tips for Donors & What Are the Requirements to Start a Non-Profit Organization?

How to Tell If a Charity Is Legitimate: Tools and Tips for Donors

(original article from: https://www.huffingtonpost.com/mike-montali/how-to-tell-if-a-charity-_b_9806518.html)

Tools for Donors:

1. The IRS Nonprofit Charities Database has a tool called “The Exempt Organizations Select Check Tool”. This tool allows you to enter the name of an organization and see if the organization is exempt or not. It is important to verify that an organization that claims to have a 501(c)(3) tax exemption is actually exempt. If the organization is not exempt, your donation will not be tax-deductible.

2. Charity Navigator rates charities based on their financial health, accountability, and transparency to help donors make informed decisions about their contributions. Charity Navigator has evaluated over 8,000 tax-exempt charities. If your chosen organization is not included, you should be sure to find out why.

3. GuideStar maintains information on 501(c)(3) nonprofits. Financial documents, such as the 990, help you evaluate the legitimacy of an organization. The 990 discloses where and how an organization’s donations are spent, including the earnings of top officers. All nonprofits are required to have up-to-date 990’s available to the public. If an organization does not have this info readily available or is not forthcoming if you request it from them, you may want to reconsider your donation.

4. Charity Watch rates charities on specific criteria. Advice, articles, and basic information are open to the public, but members-only access gives further insight into specific charities. With the goal of advocating for donor interest, Charity Watch also exposes instances of abuse.

5. BBB Wise Giving Alliance helps donors by evaluating organizations based on specific standards. There are 20 standards, such as governance and oversight, effectiveness, finances, solicitations, and informational materials, for which charities earn a point each. If an organization does not score a 20 out of 20, your donation may be better made elsewhere.

Tips for Donors:

  • Be careful with giving your credit card number over the phone or to an organization that only wants cash donations. Legitimate organizations typically have options for donating securely.
  • Understand that charities have administrative costs. If an organization claims that 100 percent of your donation will go straight to victims or resources, you may want to investigate further.
  • Trust your instinct; you should feel good about making a contribution.
  • Be careful about donating via text. Make sure you know what organization is receiving your donation follow the instructions.
  • When in doubt, consider making a non-cash donation such a food, clothing, or other goods.

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What Are the Requirements to Start a Non-Profit Organization?

Articles of Incorporation

The first step in starting a non-profit organization is filing articles of incorporation. You must fill out the required form and send two copies to the Secretary of State’s office in the state government. There is a fee associated with filing the articles of incorporation in most states, even for not-for-profit organizations.

501(c)3 Status

Whether your non-profit is incorporated or not, you must apply for 501(c)3 tax-exempt status to start a non-profit organization. This is completed by filling out IRS Form 1023 and filing the forms with the Internal Revenue Service. This form is the same for anyone within the United States who is subject to U.S. taxes. The fees associated with this include a general filing fee as well as yearly fees on a sliding scale depending on how much revenue the corporation is expected to receive over the course of a year. These must be paid to keep your non-profit in good standing as a tax-exempt corporation.

Name Registration

You must register the name of your not-for-profit so no one else can use your company or corporation’s business name. To register an assumed name that will be used by your not-for-profit, the name must not already be in use by any other entity, regardless of whether that entity is for-profit or not. There is a fee associated with registering the assumed name for your company – an important step to take so no one else can take advantage of the branding and name of your organization to solicit money or business. It will protect both you and anyone who wishes to donate money to your not-for-profit, as benefactors will be confident of exactly who you and your business are.