What rules do charities have to follow?

Public charities are dependent on public support from government grants, individual donors, private foundations and other public charities. At least 33 percent of revenue must come from small donors that each give less than 2 percent of the organization's annual funding [source: McRay].

As we mentioned, 501(c)(3)s are exempt from paying federal, and often state, income taxes. Many states allow exemption from property and state sales taxes. Federal tax code also benefits charities' donors (except for donors to public safety testing organizations). Nationally, and in many states, donors can claim income tax deductions for contributions to 501(c)(3)s up to 50 percent of their income. The amount of the donation itself is not limited, just the portion that qualifies for tax deduction [source: Foundation Group]. Tax-exempt organizations that pay wages to employees may still be liable for federal income tax, social security tax and unemployment tax on its payroll.

IRS nonprofit status itself is a benefit to a 501(c)(3), since it means the IRS has already vetted the organization and it's therefore probably credible. 501(c)(3)s are granted special nonprofit bulk postage rates, and additional benefits can vary by state.

According to federal guidelines, charities must represent the public interest and be managed by a board of stakeholders. More than half the members of the board must be unrelated to each other by blood, marriage or business, and more than half must be unpaid by the organization. Nonprofits cannot work for or reward any private interests; that is, no individual or shareholder can profit or benefit from its assets or operations. Also, 501(c)(3)s must remain largely nonpartisan. They can't engage in legislative or political lobbying exceeding 10 to 20 percent of the organization's resources and assets, and then only if the legislation in question is related to the group's activities. No specific political endorsements are allowed [source: Foundation Group].

It might sound as if there's a lot that charities can't do, but sorting through the rules and regulations is worth the effort. As of May 2009, there were 948,954 public charities operating in the United States, so there are a lot of resources available [source: McRay]. The Lots More Information page provides plenty of helpful links.