Are Charities and Nonprofits the Same Thing?
Many people incorrectly assume that nonprofits and charities are the same thing. They are actually quite different. In fact, charitable foundations once were nonprofit corporations. Some nonprofits never convert over to a foundation.
Nonprofit corporations are the beginning of a charitable foundation, but what is a nonprofit corporation? It is, essentially, a corporation like a business that is based on the idea that none of the net profit earned from donations or business activities will benefit any one person. Some nonprofits are created as a mutual benefit nonprofit corporation, benefiting a singular group rather than an individual, but never benefiting the general public.
Nonprofit organizations that benefit the general public are more widely known as charities. The overall purpose of a charity is to, in one way or another, serve and offer benefit to the public as a whole. Where a nonprofit is more aimed at serving the immediate needs of individuals, a charity more often focuses philanthropically on improving the quality of life in the community around them.
Often it is difficult to distinguish between a nonprofit and charity without doing some research. One of the most common differences, according to the IRS, is found within income. If a nonprofit earns more than 33% of its income from public donations and/or solicitation, then it is defined as a charity. Even then, how can you tell how much a nonprofit or charity receives in donations from solicitations? There is not really an easy way without doing some research.
The trick, then, in spotting the difference is found within the purpose of the organization(s) you are looking at. If the purpose is anything related to religious, educational, provides money and/or services to assist with medical research or offers anything benefiting the general public, more often than not it is a charity.
Another commonly asked question in regards to charities and nonprofits is how charities spend the money you donate. With an estimated $358 billion donated in the United States alone last year, it is no surprise that people want to know where that money is going. Sadly, there is “no federal law that prohibits a charity from lying to consumers to get money,” according to an FTC attorney.
There are numerous horror stories of charities making minuscule contributions and gifts with the hundreds of thousands of dollars they have received, then paying large salaries and bonuses to executives with the rest. Were this the truth in the case of many charities and nonprofits, there would be, presumably, almost no more donations from the general public.
There are various charity “police” that, in a sense, patrol the expenditures of charities and nonprofits. From the BBB to Charity Navigator, there are a good variety of sources you can go to in order to see how an organization spends the money they have received.
With that in mind, many people often wonder which charity is the best to donate to. While no article or finite amount of research can identify the best charity, there are some precautionary measures you can follow when evaluating which charity or nonprofit to donate to next:
First, it is necessary that you proactive in your efforts to identify what matters to you, and from there seek out organizations that support your beliefs. Being in this state of mind is referred to as an offensive approach. With that approach, you will not fail to the defensive sales pitches of other organizations that you would not normally align yourself with.
Second, focus on making a large quantity of donations rather than one large quality donation. Giving small to a variety of organizations you support prevents you from guilty that you are not doing enough. It will also help you feel as though you have given sufficiently. You will not be left wondering what was done with your impressively large donation.
One of the best advices comes from a donor to Kyäni Caring Hands, an organization focused on donating dehydrated potato meals to malnourished children throughout the world. They suggest to essentially avoid any type of over the phone or in person sales pitch for donations. Research indicates that many of these organizations do not operate with the same level of transparency as other renown organizations.
Finally, your research has paid off and you have selected the organization(s) you wish to donate to. Once you have made your donation(s), ask for a way to stay in contact and be kept in the loop with the progress they are making. This action serves two purposes – first, it allows you to get a reminder later on of the good your donation is making, and second, it keeps your organization of choice in check and responsible to you, the donor, with the funds they have received.
From the Red Cross to your local community’s smallest charity, there will always be opportunities to donate, serve and help others. Now, you will be able to better spot a charity or nonprofit as well as understand how the money you donate is being used.