Faced with ever-rising costs, the loss of government funding, and an increasing demand for their services, charities are responding by asking for larger contributions from more donors--and they're asking more often than ever before. Donors would do well to plan their giving and demand accountability of the organizations soliciting their support.

More than 80% of the money raised by charities in this country comes from individuals. To help these generous donors make wise giving decisions, the BBB Wise Giving Alliance (the Alliance) offers the following tips on charitable giving: The Basics

1. Do not give cash; always make contributions by check and make your check payable to the charity, not to the individual collecting the donation.

2. Keep records of your donations (receipts, canceled checks, and bank statements) so you can document your charitable giving at tax time. Although the value of your time as a volunteer is not deductible, out-of-pocket expenses (including transportation costs) directly related to your volunteer service to a charity are deductible.

3. Don't be fooled by names that look impressive or that closely resemble the name of a well-known organization.

4. Check out the organization with the local charity registration office (usually a division of the state attorney general's office) and with your Better Business Bureau.

Mail Appeals

1. Mail appeals should clearly identify the charity and describe its programs in clear and specific language. Beware of appeals that bring tears to your eyes but tell you nothing of the charity or what it's doing about the problem it describes so well.

2. Appeals should not be disguised as bills or invoices. It is illegal to mail a bill, invoice, or statement of account due that is in fact an appeal for funds, unless it bears a clear and noticeable disclaimer stating that it is an appeal and that you are under no obligation to pay unless you accept the offer.

3. Deceptive invoices are most often aimed at business firms ratherthan individuals. Contact your local BBB for detailed guidelineson how to handle appeals disguised as bills or invoices.

4. It is against the law to demand payment for unorderedmerchandise. If unordered items such as key rings, stamps,greeting cards, or pens are enclosed with an appeal letter,remember you are under no obligation to pay for or return themerchandise. If payment is requested, inform your local BBB. Inthe BBB's experience, unordered merchandise can mean high fundraising costs.

5. Appeals that include sweepstakes promotions should disclosethat you do not have to contribute to be eligible for the prizesoffered. To require a contribution would make the sweepstakes alottery through the mail, and it is illegal to operate a lotterythrough the mail.

6. Matching check appeals are not subject to any particularlegal requirements. Donors should keep in mind, however, thatthey do not have to return the checks if they don't contribute. The checks do not have any real value in and of themselves.

What to Do About Unwanted Mail

Many individuals have written to the CBBB complaining about theflood of direct mail they receive from charitable organizations. Most of the writers are seeking advice on how to have their namesremoved from the mailing lists of the charities sending theappeals.

The easiest solution to the problem of unwanted mail is to decidein advance which charities you want to support and discardappeals from other groups. Don't feel guilty about notsupporting all of the groups writing to you; they do not expect adonation from every person they solicit.

If you would like information about other ways to handle unwantedmail, write to the Philanthropic Advisory Service of the Councilof Better Business Bureaus.

Telephone, Door-to-Door, And Street Solicitations

When you are approached for a contribution of either your time oryour money, ask questions, and don't give a donation until you're satisfiedwith the answers. Charities with nothing to hide will encourageyour interest. Be wary of their reluctance or inability to answer questions.

1. Ask for the charity's full name and address. Demandidentification from the solicitor.

2. Ask if your contribution is tax deductible. Contributions totax exempt organizations are not always tax deductible. (See thenext section of this brochure for an explanation of the terms"tax deductible" and "tax exempt.")

3. Ask if the charity is licensed by state and localauthorities. Registration or licensing is required by moststates and many communities. However, bear in mind thatregistration in and of itself does not imply that the state orlocal government endorses the charity.

4. Don't succumb to pressure to give money on the spot or allowa "runner" to pick up a contribution; the charity that needsyour money today will welcome it just as much tomorrow.

5. Watch out for statements such as "all proceeds will go to thecharity." This can mean that the money left after expenses, suchas the cost of written materials and fund raising efforts, willgo to the charity. These expenses can make a big difference, socheck carefully.

6. When you're asked to buy candy, magazines, card, or ticketsto a dinner or show to benefit a charity, be sure to ask what thecharity's share will be. You cannot deduct the full amount paidfor any such items, as the IRS considers only the part above thefair-market value of the item to be a charitable contribution. For example, if you pay $10 for a box of candy that normallysells for $8, only $2 can be claimed as a charitable donation.

7. Call your local BBB if a fund raiser uses pressure tactics such as intimidation, threats, or repeated and harassing calls or visits. Such tactics violate the BBB Wise Giving Alliance’s recommended Standards for Charity Accountability.

Tax Exempt Doesn't Always Mean Tax Deductible

"We are tax exempt" does not necessarily mean that contributionsare tax deductible. "Tax exempt" simply means the organizationdoes not have to pay taxes. "Tax deductible" means the donor candeduct contributions to the organization on his or her federalincome tax return. The Internal Revenue Code defines more than 20 differentcategories of tax exempt organizations, but contributions to onlya few of these categories are also tax deductible. Principalamong "tax deductible" groups is the 501(c)(3) category, broadly termed"charitable" organizations.

To obtain tax exempt status under Section 501(c)(3), anorganization has to file documents with the Internal RevenueService that prove it to be organized and operated for thecharitable purposes specified by the Internal Revenue Code. TheIRS looks at these documents only in terms of the code; it doesnot "approve" specific charities or judge other aspects of thecharity's efficiency. Organizations receiving 501(c)(3) statusare those that the IRS has considered charitable, educational,religious, scientific, or literary; those that prevent crueltyto animals: and those that foster national or internationalamateur sports competitions.

When the IRS rules positively on an application, contributions tothe organization are tax deductible as charitable donations forfederal income tax purposes. The group receives a "Letter ofDetermination" formally notifying it of its status. A copy ofthis letter should be available from the organization asverification of its tax exempt status. (Older charities may havea 101(6) ruling, which corresponds to section 501(c)(3) of the1954 Internal Revenue Code.)

Generally, contributions to organizations tax exempt undersections 501(c)(4), 501(c)(6), and other sections of the InternalRevenue Code are not deductible as charitable donations, butmight be deductible as business expenses. If you are unsureabout an organization's tax status, or would like moreinformation about tax exemptions and deductions, contact yourlocal IRS office.

Additional Information

From those charities to which you plan regular and/or substantialgifts, request a copy of the latest annual report, a list ofboard members, and the group's latest financial statements. Thisinformation should give your a clear idea of what kinds ofprograms the charity operates, how and where these programs arecarried out, who governs the charity, how much of your dollar isspent on the charity's programs, and how much is spent on fundraising and administrative costs.

The financial statements should show categories of income andexpenses so you can clearly see the source of the charity's moneyand how funds are used.

Expenses are generally broken down into three main categories:program services, management and general, and fund raising. Program service costs could include research grants made toscientists, salaries of doctors and nurses working in overseasmissions, food supplies sent to feed starving children, or publicinformation pamphlets explaining a disease to patients. Management and general costs are expenses associated with theday-to-day administration of the charity. Office supplies, rent,salaries of administrative personnel, and fees paid toaccountants and lawyers are typical management and generalexpenses. Fund raising costs might include the printing andmailing of appeals, advertising in magazines and newspapers, andfees paid to professional fund raisers.

In evaluating the financial statements of the charity, consider the following financial ratios. The BBB Wise Giving Alliance recommends that the charity should (1) spend at least 65% of total expenses on program service activities and (2) spend no more than 35% of related contributions on fund raising expenses. In addition, the Alliance recommends that the charity’s unrestricted assets available for use should not be more than three times the size of the past year’s expenses or three times the size of the current year’s budget, whichever is higher.

In applying these Standards, the Alliance considers special circumstances that might make a charity's expenses reasonable even though they do not meet the percentage guidelines. For example, a new organization understandably will have higher fund raising costs than an established charity.

From a new organization that does not yet have a financial statement or annual report, the Alliance recommends that you request a budget and information about the charity's funding goals and proposed programs.

Also keep in mind that charity finances are just one part of a charity’s accountability. See the full text of the Alliance’s Standards for Charity Accountability for other recommendations about such areas as charity governance, effectiveness, fund raising practices, charity website disclosures and donor privacy. For further assistance, contact the BBB Wise Giving Alliance.

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