April 26, 2013

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BBB Advises Caution in Crowdsourcing Donations

Press Release

April 26, 2013

Within days, crowdfunding websites reportedly raised more than $2 million to support victims of the Boston Marathon bombing tragedy. While online giving provides a quick and easy mechanism for supporting those in need, donors should ask questions and know what to expect when contributing through crowdfunding websites, the Better Business Bureau warns.

Crowdfunding websites are established to allow solicitation of money for a variety of purposes. The organizations or individuals to which the funds are given can be, but are not necessarily charitable; some contributions through these sites may not be tax deductible as charitable donations.  

 Donors should know that crowdfunding websites typically take a percentage of the donation ranging from 5 to 20 percent and may also deduct payment processing fees as well. A few of these sites may allow the donor to cover all such fees, but in many instances the recipient may not receive the full amount given.  

Crowdfunding websites can raise money for legitimate charities. However, if you want to be sure that the charity receives the entire amount given, it is a good idea to go to the charity’s website and make a direct online contribution. There are advantages to giving through established charities, including the requirement that they register with state government authorities, must report on use of funds, and are subject to the oversight of a board of directors.

 “Giving is a personal choice,” said Jane Driggs, president and CEO of the BBB Serving Utah. “If you choose to give, spend a few minutes making the most of that gift. Consider directing your donation to causes established by people that you personally know and trust, to victim relief funds that are overseen by an appointed trustee or attorney, or to reliable charities with appropriate expertise.”

According to the IRS, only certain types of tax-exempt organizations are eligible to receive contributions deductible as charitable gifts. Crowdfunding donations made to support a specific individual or family are considered a “personal gift” and not a charitable contribution. If charitable tax deductibility is important to you, be sure to donate to an http://apps.irs.gov/app/eos/">eligible organization as defined by the IRS.

Additional tips:

  • Make sure the crowdfunding websites on which you donate securely encrypt all transactions using secure socket layer (SSL) technology. Look for “https” at the beginning of the website address.
  • Before giving, read the crowdfunding site’s statement about its policies, including its terms, conditions, and privacy policy, to understand how your donation and your personal information will be handled.
  • Check out charities through http://www.bbb.org/">www.bbb.org.
  • Research charities through the http://www.dcp.utah.gov/consumerinfo/lists.html?list=CH">Utah Department of Commerce, which registers charities.
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