The end of 2024 is rapidly approaching, and you know what that means: You need to fundraise in earnest. According to Double the Donation, 30% of all charitable giving occurs in December. Make sure your not-for-profit organization is top of mind when people pull out their credit cards and checkbooks.

Improve visibility

Only donors who itemize deductions on their 2024 federal income tax return can deduct donations made by Dec. 31. But plenty of others are motivated by the “holiday spirit” to give. And some prospective donors may simply use the calendar as a reminder to make their charitable contributions for the year. To help ensure the charitably minded know you want — and need — their support:

Take part in Giving Tuesday. Since launching in 2012, Giving Tuesday has grown swiftly to become one of the world’s biggest fundraisers. The online event is held on the first Tuesday after Thanksgiving — Dec. 3 in 2024. In 2023, 34 million Americans participated by volunteering and donating, including giving $3.1 billion to nonprofits. If you aren’t set up to participate, go to givingtuesday.org for information.

Focus on a theme or goal. Create a giving campaign around a fun participatory theme (one example being the ALS Association’s Ice Bucket Challenge). Or focus on a specific goal, such as constructing a new facility or introducing a new program.

Check your records. Reach out to supporters whom your records reveal have habitually made year-end contributions. You can also segment your donor database according to gift size and other characteristics that suggest some past donors may be more willing to give now.

Share your stats. Analytics can engage and motivate nonprofit stakeholders, so use statistics and infographics in your year-end appeals. Stats can illustrate your organization’s historical fundraising patterns and current goals. If you update them on your website, supporters will be able to follow your progress through a particular season or campaign.

Be prepared

Attracting support is only part of a successful fundraising season. You also have to make sure you’re equipped to handle donations.

To that end, test the donation page on your website to confirm it’s easy to navigate and ready for donors to input financial information. Your site should adhere to the highest security protocols, load quickly, and be free of dead links and error messages. Ensure your donation app sends emails to thank donors and provide them with a record for tax purposes.

Also critical: being ready to process any available matching gifts. According to Double the Donation, most companies that offer to match their employees’ charitable gifts donate at a 1:1 ratio — but some are known to go as high as 4:1. You can’t afford to miss out! Provide contributors with instructions on how to request matches. Also, set up automated emails to remind donors if you don’t receive a match.

Learn from success

Finally, be sure you document everything you learn — including what works and what doesn’t — this giving season. Contact us for more ideas on boosting your nonprofit’s income.

© 2024

You may know the difference between nonprofit and for-profit accounting systems, but do your newest employees and board members? Not-for-profits and businesses share certain similarities. For example, both must carefully track transactions and produce accurate, timely financial statements. But there are enough differences between the two that you may want to provide training for new board members and staffers who come from corporate backgrounds.

Profit vs. charitable mission

For-profit companies are driven to maximize profits for their owners. Nonprofits, on the other hand, generally want revenue to cover the costs of fulfilling their mission now and in the future.

Their respective financial statements reflect this difference. For-profits report mainly on profitability and increasing assets, which correlate with future dividends and return on investment to owners and shareholders. Nonprofits report on their financial position, stability and expenditures to funders, board members, the community and tax authorities.

Balance sheet vs. statement of financial position

For-profits and nonprofits use different financial statements to report assets and liabilities. For-profit companies prepare a balance sheet that lists the owners’ or shareholders’ equity, which is based on the company’s assets, liabilities and prior profits.

Nonprofits, which have no owners, prepare a statement of financial position, which also looks at assets, liabilities and prior earnings. Resulting net assets are classified as those without donor restrictions and those with donor restrictions. Nonprofits usually are more focused on transparency than are for-profit companies. Therefore, their financial statements and footnotes generally include disclosures about the nature and amount of donor-imposed restrictions on net assets, as well as internal limits set by the board.

Income statement vs. statement of activities

For-profits and nonprofits also take different reporting approaches to revenues and expenses. For-profits produce an income statement (also known as a profit and loss statement), listing revenues, gains, expenses and losses, to help evaluate financial performance.

Nonprofits often rely on grants and donations, in addition to fees-for-service income. So they prepare a statement of activities, which lists all revenues less expenses, and classifies the impact on each net asset class.

Unlike for-profit businesses, nonprofits also prepare a statement of functional expenses. Here, they break down their expenditures (such as salaries and benefits, rent and utilities, and office supplies) into functional categories — program, administration (also referred to as management) and fundraising. This statement often is used to help nonprofits prepare their annual Forms 990 and can provide greater transparency to their donors and supporters.

Other differences

There are other nonprofit financial reporting and accounting concepts that may be important for staffers and board members to learn, depending on their responsibilities. If you have questions or need help educating your stakeholders, contact us.

© 2024

If your nonprofit has investment income, dividends, interest, rents and annuities, they’re generally excluded when calculating unrelated business income tax (UBIT). However, income from debt-financed property typically is taxable. So it’s important to segregate income from such property and include it in UBIT calculations to help ensure you don’t trigger unwanted IRS attention.

What counts as UBI?

Income produced from debt-financed property generally is taxable unrelated business income (UBI) in the same percentage as the debt is to the full acquisition cost. This means that 75% of any income or gain from a property with a loan for 75% of its cost will usually be taxable UBI.

The most common type of income-producing debt-financed property for nonprofits is probably real estate — for example, an office building with income from rents unrelated to your nonprofit’s mission. But such property might also include stocks or other investments purchased with borrowed funds.

Income-producing property generally is treated as debt-financed for UBIT purposes if, at any time during the tax year, it had outstanding “acquisition indebtedness.” So if your nonprofit incurred debt before, during or shortly after it acquired or improved property (but wouldn’t otherwise have incurred debt), the property may be considered acquisition indebted.

What doesn’t count?

Some types of debt-financed property aren’t considered when calculating UBIT:

Property related to your exempt purpose. If 85% or more of the use of the property is substantially related to your nonprofit’s exempt purposes, it won’t be considered debt-financed property. Therefore, income from the property won’t be taxable. Simply using the income to support your programs doesn’t make the property related to your organization’s exempt purpose. The property must be used in providing program services.

Property used in certain excluded activities. This is property used in a trade or business that’s excluded from the definition of “unrelated trade or business.” That’s either because it’s used in research activities or because the activity has a volunteer workforce, is conducted for the convenience of members, or operates to sell donated merchandise.

Real property covered by the neighborhood land rule. Your nonprofit must acquire the real estate intending to use it for exempt purposes within 10 years. Also, the property usually must be connected to other property your organization uses for exempt purposes. Favorable treatment will no longer apply if you abandon your intention to use the land for exempt purposes.

Who should you ask?

There are other circumstances when dividends, interest, rents, annuities and other investment income may be taxable — for example, if it’s paid directly from a subsidiary your nonprofit controls. Determining if and when income is subject to UBIT can be difficult. We encourage you to contact us for information and help.

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Most not-for-profit leaders are familiar with the concept of excess benefit transactions and the need to avoid them. But a refresher course may be in order, particularly when you consider that 501(c)(3) organizations determined by the IRS to have violated the rules can be liable for penalties of 25% to 200% of the value of the benefit in question. They may also risk a revocation of their tax-exempt status — and, as a result, the loss of donor and community support.

Private inurement

To understand excess benefit transactions, you also need to comprehend the concept of private inurement. A private benefit is any payment or transfer of assets made, directly or indirectly, by your nonprofit that is:

• Beyond reasonable compensation for the services provided or goods sold to your organization, or
• For services or products that don’t further your tax-exempt purpose.

If any of your net earnings inure to the private benefit of an individual, the IRS won’t view your nonprofit as operating primarily to further its tax-exempt purpose.

Private inurement rules extend the private benefit prohibition to “insiders” or “disqualified persons” — generally any officer, director, individual or organization (including major donors and donor advised funds) in a position to exert significant influence over your nonprofit’s activities and finances. The rules also cover their family members and organizations they control. A violation occurs when a transaction that ultimately benefits the insider is approved.

Be reasonable

The rules don’t prohibit all payments, such as salaries and wages, to an insider. You simply need to make sure that any payment is reasonable relative to the services or goods provided. In other words, the payment must be made with your nonprofit’s tax-exempt purpose in mind.

To ensure you can later prove that any transaction was reasonable and made for a valid exempt purpose, formally document all payments made to insiders. Also ensure that board members understand their duty of care. This refers to a board member’s responsibility to act in good faith; in your organization’s best interest; and with such care that proper inquiry, skill and diligence has been exercised in the performance of duties. One best practice is to ask all board members to review and sign a conflict-of-interest policy.

Appearance matters

Some states prohibit nonprofits from making loans to insiders (such as officers and directors) while others allow it. In general, you’re safer to avoid such transactions — regardless of your state’s law — because they often trigger IRS scrutiny. Contact us to discuss the best ways to avoid both excess benefit transactions and the appearance of them in your organization.

© 2024

During the COVID-19 pandemic, Congress temporarily enabled individual charitable donors who didn’t itemize federal income tax deductions to deduct up to $300 in contributions in both 2020 and 2021. This universal charitable deduction galvanized many donors who might not otherwise have supported charities in those years. However, the deduction expired after 2021. A bipartisan group of U.S. senators, with support from many in the not-for-profit sector, are attempting to revive this tax break.

Donations drop, then rise

The approximate doubling of the standard deduction under the Tax Cuts and Jobs Act encouraged many donors who previously had itemized deductions and deducted charitable gifts to instead take the standard deduction. Researchers at Indiana University and the University of Notre Dame have found that this change resulted in a $20 billion drop in donations to charity in 2018, the year the higher standard deduction went into effect. Many nonprofits suffered from this pullback.

Although pandemic disruptions generally made giving data less reliable starting in 2020, the temporary universal charitable deduction appears to have motivated donors in middle and lower income brackets to give. According to the National Conference of State Legislatures, over 47 million U.S. households used the tax incentive in 2021 — and more than 21% of these donors had adjusted gross incomes under $30,000.

Potential congressional action

In early 2023, a bipartisan group of U.S. senators introduced the Charitable Act. (A similar bill was introduced in the U.S. House in May 2023.) This bill would expand and extend the nonitemized deduction for charitable giving by reviving and increasing the $300 deduction permitted in 2020 and 2021 ($600 for married couples filing jointly in 2021). Nonitemizing individual taxpayers would potentially be able to deduct about $4,500 (double that for joint filers) in donations annually.

Not surprisingly, many nonprofits and sector advocacy groups, including the National Council of Nonprofits and Charitable Giving Coalition, support the legislation. The most recent Giving USA survey (released by The Giving Institute) reported that charitable donations dropped by an inflation-adjusted 2.1% in 2023, which researchers believe is part of a longer-term trend toward donating less to charity.

Future of the bill

Although the Charitable Act was referred to the Senate Finance Committee, it hasn’t been taken up and its future in its current incarnation is in doubt. Organizations such as the Association of Fundraising Professionals are encouraging members to contact their legislators to revive the bill. And the nonprofit sector is likely to continue to lobby for legislation it believes will raise charitable giving levels.

© 2024