As a nonprofit board member, you should understand the following concepts around giving.
- Alignment of fundraising and financial reporting is essential for effective and timely information to reach individuals and institutions funding your nonprofit’s work. For the right reporting to take place within larger organizations, development and finance staff must have clear communication processes in place.
- The IRS regulates the donor documentation requirements needed to claim a deduction as a charitable contribution.
- Donors must receive a written acknowledgement for gifts over $250.
- Nonprofits must provide donors with a good faith estimate of the fair market value of the goods or services received in exchange for donations of $75 or more; in addition, the organization is required to inform the donor the contribution amount that is deductible for federal income tax purposes is limited to the excess of any money over the fair market value of goods or services provided by the nonprofit.
- Any noncash donation greater than $5,000 requires the organization to complete the Donee Acknowledgement portion of the IRS Form 8283. In addition, if you decide to sell or dispose of these items within 3 years of receipt, you will need to complete IRS Form 8282.
- A pledge, or promise to give, is a formal commitment to make a contribution of a specific amount. Individual donors and institutional funders can make pledges.
- An endowment is a donation given with the intent that the principal (corpus) will be invested in perpetuity. As defined by the donor, the organization may use the earnings for general operations or specific purposes.
- Donations other than cash or pledges, typically goods or professional services, are considered in-kind. An organization should be careful about issuing written donor acknowledgements related to in-kind donations. Some in-kind donations are tax-deductible like goods at fair market value, while others like volunteer time are not.
- Funds with donor restrictions are contributions restricted by the donor for a specific use. Restricted gifts require additional tracking and accounting to ensure the contributions are stewarded appropriately and used as intended. Donor-imposed restrictions may be permanent in nature (i.e., endowment) or temporary. Make sure you clarify the timing related to the restriction with your donor.
There are giving-related actions you can take to instill a strong nonprofit finance culture within your organization.
- Build systems for consistent communication between the fundraising and financial sides of the organization.
- Set goals around diversifying income streams, monitor trends that effect funding like community shifts in individual giving, and engage in scenario planning. Imagine possible scenarios that include funding either going away or new funding becoming available. Think through what the organization would do and how quickly action could happen.
- Track non-cash contributions like in-kind goods or professional services provided. Consider the possible affects to the organization, and actions needed, if a significant in-kind good or service was no longer available.
Reflect...
Review your organization’s most recent income statement. Here are some questions to ask yourself. Consider asking these questions across several board meetings to see how your answers change over time.
- Where does the organization’s funding come from now? What percentage of the budget does each funding source make up (e.g., 30% is from foundations)?
- How often do individuals involved with fundraising directly communicate with individuals responsible for accounting and financial management? Does this feel like the right level of communication for your organization? Are team members communicating about funds with restrictions, pledges, and in-kind donations?
- How is the organization accounting for pledges? Does the organization track and account for in-kind donations?
- For funds with donor restrictions, do you know what the reporting and accounting requirements are? Is the organization following through on required reporting?