Good charity or bad? A few tips for how to evaluate before you donate so your money goes to help the people you intend to help.
It’s easy to see the label ‘nonprofit’ and assume that means an organization is providing a public benefit. But many don’t live up to the values and mission they wear up front. A good charity is one which prioritizes its cause and helps you see that it’s doing so, while still treating their employees well. A bad charity, and there are many, is one that uses a cause as a profit engine for the few at the top.
Registered nonprofit organizations in the U.S. have to file a document called Form 990 with the IRS each year, showing where and how they took in money, and where and how they allocated or spent it. Most nonprofits share this form publicly, but some make you request to see it.
IRS status. Most nonprofits handling over $50,000 a year are registered as 501(c)(3) organizations (their relevant tax code), meaning both that they are exempt from certain taxes and that you may report any donations to those organizations to not be taxed on that money either.
Program spending. The Form 990 will include how much of the organizaton’s revenue is spent on its stated mission, as opposed to administrative or internal costs.
Professional Fundrasing. Fundraising is critical for nonprofits, it’s mostly why they exist. But watch for odd ratios. For instance, Baker College, a nonprofit college, is notable for spending much more on marketing itself than it does on financial aid for its students.
Executive Compensation. For most people, this is the biggest indicator of a good charity or a bad one. But nonprofits are also trying to compete with for-profit companies for talented executives, so a high CEO salary might not mean bad news. The information does have to be disclosed, however. Google a CEO and see if their net worth seems in line with what the nonprofit says they’re paying them.