There are many thousands of charitable foundations in the United States. And, according to technology company Foundation Source, U.S. foundations awarded an average of 33 grants averaging between $25,000 and $28,000 each in 2022 (the most recent year for which data is available). So a lot of grant money is out there for not-for-profit organizations that know where to look and how to qualify for it. Here are some suggestions.

Match your mission with their interests

Probably the most important thing to remember about foundations is that they tend to specialize, making grants to certain types of charities or in specific geographic regions. It’s not enough to be a 501(c)(3) organization — though your exempt status is important. For your nonprofit to succeed at obtaining a grant, its mission and programs must align with the foundation’s interests.

Before you apply for a grant, review the foundation’s annual reports, tax filings, press releases and any other information you can get your hands on. One place to start is the nonprofit data organization Candid’s online directory of foundations.

Once you have a list of matches, don’t just start sending out long, detailed proposals. Call your target foundations and talk to staff members about the information they need and their communication preferences. Most will be happy to provide insights into their decision-making process and shed light on your chances of securing a grant.

Finish what you start

The most successful foundation grant proposals have several qualities in common. For example, foundations tend to like projects that are well-defined and data-driven with specific goals. They also want to know that their gifts are effective, so achievement of goals needs to be measurable.

In your grant proposals, make sure you outline the project’s life cycle and how you plan to fund it to completion. Many foundations provide the money to initiate projects but expect nonprofits to use their own funds and other grants to continue them. In fact, if you hope to establish a long-term relationship with a foundation that has given you a grant, you must successfully finish what you started.

Just because a grant proposal is rejected doesn’t mean the same foundation won’t welcome future applications — and say “yes” to them. Call the decision-maker and ask that person to explain why your application was rejected. Foundation personnel may be able to provide tips on making your proposals stronger. Many organizations are competing for the same foundation funds, so tenacity is crucial.

Many priorities

If you’re worried about funding your nonprofit’s many priorities, contact us. We may be able to suggest additional ways to find new revenue and cut existing expenses.

© 2024

The reelection of Donald Trump as President and control of the U.S. Congress by Republicans are anticipated to usher in changes that could financially impact the not-for-profit sector. Whether and to what extent your organization will be affected will depend on your mission, funding sources and other factors. But in general, you may want to keep an eye on the following issues.

Exempt status of “terrorist supporting organizations”

On Nov. 21, 2024, the Republican-led House passed legislation that would enable the U.S. Treasury Department to revoke the tax-exempt status of nonprofit organizations that it claims support terrorism. Although the bill is unlikely to be taken up by the current Democratic-controlled Senate, it could potentially pass the Senate and be signed into law when Republicans take over in January 2025.

The Council on Foundations, Independent Sector, National Council of Nonprofits and United Philanthropy Forum have formally opposed the bill. They say it would give the Secretary of the Treasury unilateral discretion to designate nonprofits (including humanitarian charities and labor unions) as “terrorist supporting organizations” without having to share evidence of such activities. Accused nonprofits would be given 90 days to appeal any “terrorist supporting” designation.

Spending cuts and funding opportunities

President-Elect Trump’s campaign promises to slash spending could also affect funding availability for nonprofits that depend on federal grants and contracts. Making the situation more challenging, organizations that provide social and other essential services could experience more demand if vulnerable people lose food and housing assistance benefits. Environmental, social justice, civil liberties charities and organizations that prioritize diversity, equity and inclusion (DEI) initiatives also are expected to encounter fewer resources and increased government scrutiny.

On the other hand, certain faith-based organizations may receive greater support under the new administration. This could enable them to provide more assistance to such groups as the homeless, food-insecure and formerly incarcerated at the community level. Educational nonprofits whose programming aligns with Trump’s priorities — including school choice, STEM education and vocational training — could also receive new funding and support.

Tax cuts and extensions

Charitable donors who itemize deductions are expected to continue to be able to deduct contributions on their federal tax returns. However, the higher standard deduction under Trump’s Tax Cuts and Jobs Act (TCJA) that’s scheduled to expire after 2025 now is likely to be extended or made permanent. This would mean more taxpayers would continue to claim the standard deduction and, therefore, be ineligible to deduct charitable donations.

Congress is expected to extend or make permanent some other tax provisions that potentially could reduce financial incentives for charitable giving. For example, if the gift and estate tax exemption remains high (it’s scheduled to be almost $14 million per individual in 2025), wealthy individuals may be less inclined to donate money and assets to charity.

Possible tax law changes could also make charitable giving less attractive, such as a capital gains tax reduction. Currently, donating highly appreciated assets to charity enables donors to both save the tax they would have owed if they’d sold the assets and claim a charitable deduction for the assets’ fair market value.

Plan now

Nonprofit organizations that depend, even in small part, on federal funding or that have missions that make them vulnerable to political scrutiny should start planning now. And additional tax legislation could affect your ability to raise funds and fund programs.

You may qualify for new state, local and private foundation grants. Or we may be able to help you find other untapped sources of revenue and opportunities to cut expenses. Finally, if you at any time receive notice from the IRS or another government agency about an investigation into your finances or activities, contact us and legal counsel immediately.

© 2024

The hubbub of the year-end giving season, combined with holiday absences, can make your not-for-profit vulnerable to fraud. You’ll need to be particularly vigilant if you generally rely more on volunteers this time of year, hold special fundraising events or intend to give gift cards to staffers and clients. Here’s what to look out for.

Care with cash

Charities generally are staffed by people who believe strongly in their missions. This typically contributes to a culture of trust, which can make nonprofits vulnerable to certain types of fraud. For example, staffers and volunteers may be trusted to accept cash, making it easy for crooked individuals to pocket it. So ensure that a manager supervises anyone who accepts cash donations and keeps meticulous records of all cash received.

If you’re holding a special event this holiday season, minimize the risk of cash theft by preselling or preregistering participants. Also make sure you’re set up to accept credit cards at your event — and encourage credit card payments. If you decide to accept cash at the door, assign cash-related duties to employees who’ve undergone background checks or to trusted board members rather than unsupervised volunteers.

Segregation of duties

Regardless of how busy staffers are processing donations and completing year-end tasks, they need to observe internal controls such as segregation of accounting duties. To reduce opportunities for any one person to steal, involve several employees in processing payables and receivables. For example, every incoming invoice should be reviewed by the staffer who placed the order to confirm the amount and that the goods or services were received. A different employee should be responsible for processing the payment. And a third person (or outside financial advisor) should routinely review your books for any anomalies.

If staffers who usually carry out these responsibilities are on vacation, enlist the help of executives and board members. Don’t cut corners or allow control overrides because you’re operating without a full staff. Instead, you might look for tasks you can put on hold until everyone is back after the holidays.

Gift card risk

Gift card fraud is another potential holiday season risk. If you plan to give gift cards to staffers or clients, be careful about where you buy them. In a scam known as “draining,” fraudsters obtain bar codes, PINs and activation codes by opening gift cards on store display racks. After the crooks reseal the cards, consumers buy and add money to them and the thieves spend the funds before gift recipients get a chance to.

Buy cards only from stores with good security — including security cameras on gift card racks. Also inspect cards for signs of tampering and promptly give them to your recipients, encouraging them to use the cards soon.

Holiday spirit

The period between Thanksgiving and New Year’s Day generally is a critical fundraising season. Don’t let fraud undermine all your hard work and eat into your nonprofit’s revenues — not to mention, ruin your holiday spirit. Contact us for help establishing or strengthening internal controls.

© 2024

The difference between financial pledges and donations is relatively simple: Pledges are promises to donate sometime in the future, and donations provide immediate support for your not-for-profit organization. What’s not so simple is accounting for pledges. After all, a promise to donate isn’t a guarantee that you’ll receive the money when the contributor says you will — if at all — or in the amount pledged.

Unconditional is a green light

Let’s say a donor makes a pledge in September 2024 to contribute $10,000 in January 2025. You generally will create a pledge receivable and recognize the revenue for the September 2024 financial period. When you receive the donation in January 2025, you’ll apply it to the receivable. No new revenue will result in January because the revenue already will have been recorded.

However, you can’t recognize the revenue unless the donor has made a firm commitment and the pledge is unconditional. This means the donor has committed to the pledge without reservations. Several factors might indicate an unconditional pledge, for example, if the promise includes a fixed payment schedule or the amount can be determined. Unconditional promises also typically include words such as “promise,” “pledge,” “binding” and “agree” — as opposed to “plan,” “intend” and “hope.”

Conditional warrants caution

What about conditional promises? They could include a requirement that your organization complete a particular project before receiving the contribution or that you send a representative to an event to receive the check in person. Matching pledges are conditional until the matching requirement is satisfied, and bequests are conditional until after the donor’s death.

You generally shouldn’t recognize revenue on conditional promises until the conditions have been met. Recording a conditional pledge could be acceptable if the odds of a condition going unfulfilled are remote. Say, for example, that a donor makes a pledge with a condition that your nonprofit still exists in five years. If your organization has been in a solid financial position for 10 years and has no plans to close, you’ll probably be able to satisfy this condition.

Support and recognize promises

Whether a pledge is conditional or unconditional, your accounting department will need written documentation to support a pledge before recording it. The strongest evidence is a signed agreement with the donor that details the pledge’s terms, including the amount and timing. If pledges come up often, you might want to develop a standard pledge template to use with all pledge donors. (Note that reluctance to sign such an agreement could be reason to question a donor’s commitment, and you might not want to record the pledge.)

To reflect the time value of money, pledges must be recorded at their present value, as opposed to the amounts your nonprofit expects to receive in the future. For pledges you’ll receive within a year, you can recognize the pledged amount as the present value.

If a pledge will be received further in the future, though, present value is calculated by applying a discount rate to the amount your organization is expected to receive. The discount rate is usually the market interest rate — or the rate a bank would charge you to borrow the amount of the pledge. Additional entries will be required to remove the discount as time elapses.

Your fundraising strategy

It’s understandable if your organization prefers outright donations to pledges. But pledges can play a valuable role in your fundraising strategy because they’re generally for larger amounts. Also, donors tend to have longer relationships with nonprofits to which they pledge. Contact us for advice about accounting for pledges properly.

© 2024

The SECURE 2.0 Act made some enhancements to IRA qualified charitable distributions (QCDs) that may benefit your not-for-profit organization — so long as donors know about them. You can encourage your supporters to contribute more by boning up on the new rules and communicating their tax advantages.

QCDs to RMDs

First, the basics: QCDs were established in 2006 and became permanent in 2015. Taxpayers age 70½ or older are allowed to make QCDs up to an annual limit from their IRAs directly to a qualified charity.

A charitable deduction can’t be claimed for a QCD, but the QCD amount is excluded from the donor’s taxable income. And the QCD can be used to satisfy the IRA owner’s required minimum distribution (RMD), if applicable.

SECURE 2.0 enhancements

SECURE 2.0, signed into law in 2022, includes some significant QCD enhancements. Beginning this year, what was previously a $100,000 annual distribution limit is now indexed annually for inflation — $105,000 in 2024.

SECURE 2.0 also created a new QCD opportunity starting in 2023. Taxpayers can make a once-per-lifetime QCD of up to $50,000, annually indexed for inflation ($53,000 in 2024), through a split-interest entity. These include charitable gift annuities, charitable remainder annuity trusts and charitable remainder unitrusts. Split-interest entities generally allow donors to make gifts to your nonprofit while creating an income stream for themselves. After a designated period of time, the balance goes to your organization.

As with regular QCDs, the amount of a split-interest entity QCD isn’t deductible, but it counts toward RMDs and isn’t included in the donor’s taxable income. Spouses can each make a QCD to the same split-interest entity to double the gift. Split-interest entities must pay a 5% minimum fixed percentage annually for the life of the donor or the donor’s spouse, and these payments are taxed as ordinary income.

Boost donations

How can you get the word out and boost donations? Consider preparing a presentation, brochure or both on how QCDs work, stressing the tax advantages for donors. A QCD might be especially tax-smart for donors who:

• Can’t benefit from the charitable deduction because their total itemized deductions for the year won’t exceed the standard deduction for their filing status, or
• Want to donate more to charity during the year than they can deduct due to adjusted gross income (AGI)-based limits on their charitable deduction. In general, deductions for cash gifts to public charities can’t exceed 60% of AGI and deductions for donations of long-term capital gains property to charities can’t exceed 30% of AGI.

But don’t limit your education campaign to these technicalities. Supporters increasingly are interested in outcomes. Be as specific as possible about how you’ll apply a donor’s QCD — for example, to fund a new program or facility or pay for additional staff.

Qualified recipients

Note that donor-advised fund sponsors, private foundations and supporting organizations continue to be ineligible as QCD recipients. Indeed, you should make certain that your nonprofit is allowed to accept — and is set up to receive — QCDs. Contact us for help.

© 2024