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Fake nonprofits are a taxing problem for donors

TODAY Financial editor Jean Chatzky shares smart tips on how to avoid accidentally donating goods or money to charity scams.
/ Source: TODAY contributor

I'm always sad to see the summer end. The kids go back to school, the relaxed attitudes that go hand in hand with hot weather shift, and I don't even want to think about when I'll next see a beach. But the one thing I don't mind about the change in seasons is an opportunity to clean out my closet.Sounds crazy, I know, but there's something about weeding out the old to make room for the new, or at least the recently unearthed, that makes me feel good. I like seeing pieces that I haven't seen in a while, like fall jackets, long-sleeved shirts and boots. In years past, I used to simply pile up the car and take all the stuff to a local Goodwill or Salvation Army drop box. Unfortunately, those boxes are not as clearly marked as they used to be.

I recently had the experience of putting something in a drop box with a red cross on the front before reading the disclaimer that noted it wasn't really an American Red Cross collection bin and a only portion (how much of a portion was unspecified) of proceeds would go to the organization I thought I was supporting. I was annoyed, to say the least. And, notes Bennett Weiner, chief operating officer of the Better Business Bureau's Wise Giving Alliance, I'm not the only one. Here's how to make sure it doesn't happen to either me or you again. Pick a well-known organizationPick a well-known organization, but don't rely on name recognition alone. Less-than-scrupulous groups often use names or symbols that make them appear to be a charity, when in fact they aren't. It's particularly important to be wary when it comes to unsolicited mailings or drop boxes like the ones you often see outside of supermarkets and strip malls. All of these should list contact information for the organization, including a phone number (try it out), mailing address and a Web site where you can do a bit more research. If you're still not satisfied, check with the BBB to see if it has any information or complaints on file about the organization, says Weiner. Their Web site,, lists reports on more than 1,100 charities, and your local office will have details on even more. Get documentationReal charities are an open book, says Deborah Mitchell, a project editor at Their records are public, so they'll be willing to offer up any paperwork you ask for, including tax returns and a 501(3)(c) number, which proves that they are a nonprofit, religious or educational organization. You'll need the number anyway if you plan to write off the donation come tax season, so why not request it up front?Ask questions
Don't just assume that all thrift stores are using their proceeds for a good cause, because they're not. In fact, of the 25,000 resale and thrift stores in the country, only about 30 percent of them are run by charities, according to the National Association of Resale and Thrift Shops. Before you donate, ask what charity is benefiting from the sale of your things, and what percentage of the proceeds actually gets passed on. Then follow up with that organization to double-check the facts. If it's legit, the thrift shop should have no problem providing you with the details of the benefiting charity, along with a contact phone number and any other information you want. Look for niche organizationsThe Salvation Army and Goodwill are both great charities, but remember that there's a group out there for virtually every donation. If you have a prom dress that you know you'll never wear again, it might be better appreciated by a group like the Glass Slipper Project in Chicago, which will clean it up and give it for free to a girl who can't afford to buy one. Likewise, Soles4Souls will gladly take your gently-used shoes, and BabyBuggy in New York is a great place to land baby gear and clothes that you no longer need. “There's basically a place for everything,” says Mitchell. “It's a shame to throw anything out.”Follow the guidelinesBig charities will often post their donation rules on the Web, so you can access them easily before you drop off your goods. As a general rule, though, make sure the clothes you're giving away are clean, and that there aren't any missing buttons, broken zippers or stains. You could actually cost the charity money if they have to spend a lot of time sorting through donations to get rid of your old socks or that ripped concert T-shirt from 10 years ago. And if your donation includes things like toys, it might be a good idea to call in advance, Mitchell says, because there are so many safety issues to consider.

Get your tax write-off
Take note: The rules have recently changed, and in order to claim a charitable deduction on your taxes, the goods you donated must have been in “good used condition or better,” according to the IRS. Use your best judgment, and be sure to add up the value of your donation, because the charity won't do it for you. “Fair market value is how much the item, in current condition, would sell for in a thrift store,” explains Weiner. A program like Turbo Tax's ItsDeductible might be helpful. Remember to always get that 501(3)(c) number and a receipt once the goods have changed hands.

With reporting by Arielle McGowen.

Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for Life magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, .