12 Things I Wish I Knew About Non-Profits When I Was 20

Most people want to help others and in the US, that help is often made through donations to non-profits – organizations that are tax-exempt because they are deemed altruistic.  But, non-profits are a big business in the United States with an estimated $500 billion in donations made annually to more than 1.5 million organizations that employe an estimated 15 million employees.

One of the most important things to know about tax-exempt non-profits is that they differ greatly in purpose. Non-profits help the sick, feed the hungry, make grants, educate, train, conduct research, provide healthcare, lobby for special interests groups, promote agendas for trade associations and political action committees, market consumer goods, manage investments and retirement accounts, manage and oversee sports, and more. Understanding the mission of a non-profit is key to understanding how revenue is collected and more importantly, how revenue is spent.

When I was young, I did not realize how vast the non-profit system is in our country. Tax-exempt non-profits are a huge part of the American culture so its important to know more about these organizations before you use your hard earned dollars to support these organizations. With that in mind, below is a list of 12 things I wish I knew about these organizations when I was young:

1. Before making charitable donations, always read a Form 990 (or if you can’t, ask a friend who has basic accounting knowledge to help you).
2. Pay particular attention to Schedule J that reports executive compensation, first class or charter travel, discretionary spending accounts, social club dues, discretionary retirement accounts, and other perks.
3. Marketers know how to pull heartstrings so don’t fall for the expertly crafted commercials and telemarketers.
4. Don’t succumb to the pressure employers place on making scheduled charitable contributions through automatic payroll deduction. Charitable contributions are a personal decision that employers should not be involved in.
5. Figure out what the non-profit organization’s purpose is:  do they make grants, feed the hungry, help the sick.  The purpose matters.  Non-profits that make grants deduct their administrative costs before a grant is awarded and the recipient also has to deduct their costs. Whenever possible, give directly to a non-profit that serves an end user.
6. Figure out if an organization is fixated on growing their endowment or helping others.
7. Give locally whenever possible. Most local non-profits – especially food banks – watch every dime so your charitable donations goes further towards helping others.
8. Don’t donate to non-profits that don’t provide transparency.  There are non-profits that claim a religious exemption and don’t have to file a Form 990 or tell the public how much revenue they raise and what they spend revenue on.
9. Know that Form 990’s typically classify expenses as program, management and general, or fundraising.  “Program” expenses are defined differently by organizations so ask the tough questions to find out what’s included in this category. Or, for more specific information on expenses, zero in on Part IX (Statement of Functional Expenses) on the Form 990.
10. Know that some non-profits set up a separate non-profit for fundraising which means you need to expand your research because fundraising costs will not appear on one Form 990; often times you may have to review several Form 990’s that relate to “one” organization.  For example, St Jude has a separate organization (ALSAC) whose sole purpose is to fundraise for St Jude.
11. Pay attention to expenses for travel and conferences (see Part IX (Statement of Functional Expenses) on the Form 990)
12. Pay attention to how much outside fundraisers/telemarketers are being paid (see Schedule G, Part I (Fundraising Activities) on the Form 990.