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- How do I report fundraising costs accurately?
- Where do I get information about funders?
- How do I learn more about fundraising and grantwriting?
- Can I fundraise before my organization is tax exempt?
- Don't forget to say thanks
Most nonprofit donors would prefer their contributions be used entirely for mission-focused program activities, but realistically, all nonprofits must spend some contributed income to raise the funds needed to carry out valuable programs.
Needless to say, there is confusion about how to report fundraising costs accurately. To answer some of the lingering questions, The American Institute of CPAs (AICPA) has issued Statement of Position (SOP) 98-2 to offer guidance to accounting professionals regarding fundraising costs.
However, the confusion continues and is heightened by Form 990 instructions, which have not quite caught up with GAAP. The IRS is much more liberal in its approach to allocating the joint costs of fundraising and program activities (e.g., newsletters).
As a result of the differences between GAAP and the IRS—and the pressure organizations feel to minimize fundraising costs—the reporting of fundraising costs on the Form 990 is alarmingly inconsistent, and comparing the percentage of dollars raised used for fundraising among organizations is almost always misleading.
How should your nonprofit define fundraising costs? Here are a few suggestions:
- Set up a fundraising cost center in your chart of accounts and track fundraising expenses throughout the year.
- Identify all the ways your nonprofit seeks contributions—direct, special events, major donor campaigns, foundation proposals, etc.
- Identify all the costs associated with these efforts, including the cost of staff time to organize events, send out mailings, coordinate volunteer solicitors, etc.
- Check to see if any of the activities fit an "exception" from being considered fundraising costs. SOP 98-2 provides an exception for the cost of exchange transactions, such as the cost of hotel food service at a fundraising event. Since the purchasers of tickets to the event are not allowed to include the fair market value of the dinner as a charitable gift, you do not need to consider the actual cost of purchasing their dinner as a fundraising cost.
- Remember that fundraising costs refer to soliciting contributions. In many cases, grant proposals are prepared in response to a request to submit a proposal. You may be responding rather than soliciting.
- Check out SOP 98-2 to learn how to discern whether an activity should be considered as a fundraising purpose rather than programmatic or administrative. The key elements of the distinction are: purpose, content, and audience. If you've decided whom will receive a letter or other invitation based on their ability to contribute or past history of giving, you are engaged in fundraising even if the letter or event contains a tremendous amount of program information.
In Oregon the best resource is The Oregon Foundation Databook. It is available at many libraries or you might ask other organizations if they have a copy you can borrow.
The Foundation Center provides a lot of helpful information and links to many foundations.
The main branch of the Multnomah County Library has a Foundation Center Collection that includes books on funders, grantwriting resources and access to a national database, GrantSelect, that allows users to search for funders using specific criteria. There are additional Foundation Center Collections in both Oregon and Washington. Check with your local library for more information.
There are many resources that will fit most budgets and most learning styles.
CLASSES & WORKSHOPS
There are a variety of local and national resources available.
- Check our event calendar for upcoming training events for grant writing and fundraising workshops
- Check your local community college's schedule of classes
- Check out The Grantsmanship Center
- Check out the website for the Institute for Nonprofit Management
Probably the best way to learn is by doing. If you would like some coaching you may want to hire an experienced grantwriter or fundraising consultant to review your work. You may also search the Nonprofit Consulting & Services Directory or contact the NAO Helpline at firstname.lastname@example.org to obtain some referrals.
- Grassroots Grants by Andy Robinson. Inexpensive, straightforward, and easy to understand with good examples.
- Fundraising For Social Change by Kim Klein
- Your local library probably has a grants collection that contains books on grantwriting, books listing grantmakers, and software to search for grant opportunities. What's more, a librarian will help orient you.
- Grassroots Institute for Fundraising Training (GIFT)
- Amazon’s Top 10 Fundraising Books
There are ways to raise funds while you are waiting for your tax-exemption letter of determination. You may:
- Hold fundraising events where participants do not expect to receive a tax deduction for any money they might spend. Examples: a benefit dinner, a benefit performance, or a garage or bake sale.
- Work through a fiscal sponsor.
There is no problem with people giving you a contribution as long as you are clear with them that you do not yet have tax-exempt status and cannot guarantee that their contribution will be tax deductible. Often, friends and family are willing to take the risk.
For more information about Fiscal Sponsorships, please visit our FAQs on the topic.
Many of you are currently involved in year-end giving campaigns, with letters and emails going out to past and prospective donors. Getting donors is only part of the job of fundraising. You also need to keep them. How you treat your donors and thank them for their support is important, and if done right and done consistently, will result in loyal donors who keep on giving. Timely and personal acknowledgement of a donor’s gift builds trust and lets your donors know you are doing your job.
Acknowledging your donors is also good practice because they need a receipt of their gift in order to deduct it from their taxes. The date of the gift is particularly important to acknowledge when the contribution is made close to or on December 31.
Here are some other tips for ensuring proper acknowledgement of year-end donations:
1. Remember the “postmark rule” for cash gifts. The date of the gift is the date the donor mails the check, or the postmark date on the envelope. It is NOT the date the donor writes on the check and it is NOT the date your organization receives the check.
2. If the donor hand-delivers the check, the date of the gift is the date it was dropped off. The receipt you provide the donor should reference this date.
3. Include the name of the donor, the amount or value of the donation, the date the donation was made, and the name of your organization and your Tax Identification Number.
4. For gifts of stock the value of the gift (the amount that is tax-deductible) is the mean between the high and the low bid prices for the shares on the date of the gift. It is not the closing price on the date of the gift, and it is not the amount your organization receives when you sell the shares. It’s the donor’s responsibility to determine the value of his/her deduction, but since this value is easy to determine, you may want to include the amount in your receipt to the donor.
5. Don’t forget to include information about IRS rules for donations. Here is an example of standard substantiation language:
(NAME OF ORGANIZATION) is a 501(c)(3) nonprofit organization. Your contribution is tax deductible to the extent allowed by law. No goods or services were provided in exchange for your generous financial donation. Our tax identification number is (XX-XXXXXXX).
Get your Board involved!
Board members often want to help but are sometimes unsure about what to do. Involve them in your donor acknowledgement plan by having them write personal Thank You notes, especially to donors they know. Receiving a personal note from a peer or friend is powerful for a donor, and a great motivator for continued giving. Phone calls or emails from Board members are fine too.