Wednesday, September 21, 2016

Technically Speaking, What is a Charity?

America has more than 1.57 million tax-exempt organizations. That makes us home to the largest nonprofit sector in the history of mankind! But not all of these are technically charities. In fact, the nonprofit tax code encompasses more than 30 different types of organizations including: charities, private foundations, credit unions, fraternal associations, and teachers’ retirement fund associations. At a high level, the breakdown of these different nonprofits is as follows:
  • 1,097,689 public charities
  • 105,030 private foundations
  • 368,337 are other types of nonprofits

It is important for donors to understand the differences in these various types of nonprofits. For one, donations to only certain types of nonprofits qualify for a tax deduction.  But also, different types of nonprofits operate in different ways, file different information with the IRS annually, and thus may not be rated by Charity Navigator.

More specifically:


So, what does all of this mean to donors?

  1. There are literally a million choices for donations. Make sure you take the time to vet your options and support only those high-performing charities that exactly match your specific philanthropic interests.
  2. As part of due diligence before donating, be sure to look up the organization’s classification under the tax-exempt listings. And if you want to deduct your generosity from your next tax return, then make sure you are only giving to nonprofits that are classified as 501(c) (3) public charities (every rated organization on Charity Navigator’s website meets this criteria).