Fundraising Q&A-Auction Items

QUESTION:  What is the charitable contribution for the winning bidder of an auction item?

 

ANSWER:  The winning bidder of an auction item can take a deduction for the amount in excess of the value of the item.   For example, a bidder pays $80 for a $50 restaurant gift certificate.   Their charitable contribution is $30—the amount the price paid exceeds the value by.   If they bid $50 for the $50 gift certificate there would be no charitable contribution.

Another example,  the bidder pays $1,000 for a painting valued at $800.  The charitable contribution would be $200.

The other side of this question is—what is the charitable contribution for a donor of an item that will be used in the auction?

The donors charitable contribution will not be noted by the nonprofit.  The letter from the nonprofit should say thank you for your donation of (describe item) with no mention of the value.  The donor should determine the value.  The donors charitable deduction is limited to the donors cost for the item. 

For example, the donor asks the restaurant to donate a $50 gift card.   The gift card sells for $100.  The donors charitable contribution is zero.   If the donor purchased the gift card for $50 and donated it to the auction, their charitable contribution would be $50.

In the painting example, the artist who donated their own painting that would normally sell for $800 at a gallery, gets a charitable contribution only for the supplies—paint, canvas, etc.  Their time is not valued.

 

It Can't Happen Here

When we are asked to speak about fraud at conferences, attendees will sometimes say

"that could never happen in our organization"

I wish that was true.   I wish I didn't pick up the local paper and see articles on embezzlements at local companies, nonprofits, churches, and youth sports organizations throughout the year.  I wish I didn't read the articles and realize that in most of the cases, the fraud could have been prevented.

This article here discusses the damage that a fraud can do to a nonprofits reputation and signs to look for in your organization.

For more about what you can do to deter fraud in your organization, contact us at cbergvall@bbco-cpa.com

Fundraising Q&A-What can a participant deduct for a special event?

QUESTION:  What can a participant deduct for a special event?

ANSWER:  The general rule for special events is that participants can take a charitable deduction for the part of the event fee that exceeds the benefit to the participant.  For example: if a dinner ticket to an event in $150 per person and the value of the dinner is determined to be $100, the attendee can take a $50 charitable deduction.  It is the responsibility of the nonprofit to notify the attendee of the value they received.  This is an IRS requirement when the value received by the participant is more than $75.

QUESTION:  How should the nonprofit notify the participant of the value of the special event?

ANSWER: There are several ways a nonprofit can do this.   The notice can be printed on the ticket to the event.    $50 of this ticket price represents a charitable contribution.      It can be part of the text of a follow up thank you note from the event.   Thank you so much for joining us as we celebrated 25 years of fighting poverty.  We raised over $30,000 at our event.   Please note that the FMV of the dinner was $100 and  $50 of the ticket price is a charitable contribution.

Fundraising Q & A-5K Fundraiser

 

QUESTION   How should a 5K fundraiser be handled?  Is the registration fee a tax deductible contribution for the donor? 
ANSWER   Typical registration fees for a for profit 5K range from $25 to $100 depending on the amenities available to the runner.   A run that just provides a T Shirt usually is $25.  A run that provides a T Shirt, water bottle, other give away items and food may be $100.  Given those parameters, a nonprofit can determine the value of their run to the participant.   Typically registration fees to run in a nonprofit fundraising run will not be tax deductible to the participant.  Usually a nonprofit fundraising run will involve participants raising money from sponsors.  Those funds raised will be deductible by the sponsors.  A participant who sponsors themselves will be able to deduct that sponsorship portion that is over and above the registration fee.

Ex-Jane Runner pays a $50 registration fee to run in the 5K to benefit Community Nonprofit.  Her friends contribute $500 through sponsorships.   She also adds another $150 to her sponsorship beyond the $50 registration fee.   Her friends will receive a $500 charitable contribution and Jane will receive a $150 charitable contribution.  Jane cannot take the $50 registration fee as a charitable contribution.

The nonprofit needs to carefully word their thank you notes so that it is clear that the registration fee is not a charitable contribution.

Fundraising Q&A-PANO Resources

Over the summer Liz and I presented the popular PANO session-Fundraising Practices: Track It Right! Book it Right! Report it Right!  at the beautiful historic site Pennsbury Manor, right on the Delaware River.   The audience was very engaging and had a number of great real life stories of transparency in fundraising.    Some good questions came out of the session and I’ll share them in the next few posts.   

The great part about teaching the session is that we talk to the group about best practices in fundraising and PANO has a treasure trove of resources to help nonprofits follow these best practices.   These resources are available free to members or for a small fee ($10 to $15) for nonmemebers  at the PANO website.   There are sample policies, guidelines, and procedures that will save you time and frustration.    You can order the materials here.   Select Educational Resource Packets.

Thank You (with a few IRS strings attached)

A timely thank you to your donors is a practice that let's your donors know how much you appreciate them.  The IRS has requirements that you need to follow if your donors want to deduct their contribution.

• Donations of more than $250 must be acknowledged in writing
• The phrase "no goods or services were received in exchange for this contribution" must be included with the letter (unless they did receive goods or services-see below)
• The letter needs to be sent prior to the due date of the donor's tax return.  Typically this would be by April 15 of the year following the year the donation was made.

If the donor did receive goods or services--for example, they purchased a ticket for a golf outing, then the value of the golf outing would reduce the contribution.  So if the event ticket is $150 and the value of the golf outing is $100, your thank you letter would note--for tax purposes, only $50 is tax deductible.  The fair market value of the food and the golf outing is $100.

NOTE:  if your donor does not receive a timely thank you letter OR the letter does not say ""no goods or services were received in exchange for this contribution" then they will not be able to take a tax dedcution for the donation.

5 Time Saving Quickbooks Features

Many of our nonprofit clients used Quickbooks.   This blog post from K2 Enterprises lists 5 great Quickbooks features that you might not be aware of.   These 3 will be especially helpful to nonprofits.

1. Nonprofits often use the class feature to track grant expenditures or expenditures related to a specific program.   If you need to reclassify a group of expenses from one class to another, you don't have to select each individual expense.  The blog shows you how to use Client Data Review to reclass the group of expenses all at once.

2.  Nonprofits will have additional reporting requirements and will frequently export Quickbooks information to Excel and then work with the information to produce a report.   Quickbooks Statement Writer lets you set up the report in Excel and then update the information from Quickbooks without having to recreate the report everytime.

3.  Some nonprofits have a related entity.   This means they have two company files on Quickbooks.  The blog shows you how Quickbooks will let you open two company files simultaneously.

LinkedIn Endorsements - What's It all About

For months I had been getting notices...."Cindy!  Jane Doe endorsed you for calculator skills!    John Brown endorsed you for walking without tripping!"

What was this?  Should I say thank you?  Should I endorse others?    I came across this article that helped me understand endorsements and why it's important.  

However, it wasn't until today that I took action.    I didn't want anyone to get notifications that I was doing major work to my profile so first I turned off the notifications as follows:

 Turn off notifications that you’re making changes to your profile, by going to the Settings tab (mouse over your name on upper right hand corner) and then going to Privacy Controls (middle column on bottom half of screen), clicking “Turn on/off your activity broadcasts,” and unchecking the box to “Let people know when you change your profile, make recommendations, or follow companies.” That way you can make changes without telling the world.

I turned this back on when I was done.

Then I reviewed the endorsements that I received and clicked the X by any endorsements that I didn't want published.  For example, while I know Excel and Word--I don't want to be endorsed for them.   Then I clicked the box that allowed me to add the endorsements to my profile.   My profile was instantly updated with skills and expertise.

Immediately after that, a box popped up with suggested endorsements for people I know.  I tried to only endorse skills that I knew the person actually did.   There was a box where you could endorse all 4 people that showed up at the same time.

So I am glad I could reciprocate for all the nice people that endorsed me and now all those nice endorsements from others are showing in my profile.

So thank you to all those who have generously endorsed me.   I hope to continue to stay on top of this.

Note:  I guess my comment on hiding my update was unnecessary given this post.  But I found the process helpful and thought others might too!

Outcomes Data Shows Life Changing Results

As an accountant and a nonprofit strategic consultant, I see the power of combining numbers and data with process and strategy to achieve results and increase capacity.  Its what we put into practice when we work with our clients.   Its what I speak to nonprofit and business groups about throughout the year.  And its been the topic of a number of posts in this blog.

So I am very excited about the results of a study released this month summarized in this article from Christianity Today.   The subtitle says it well   "A top economist shares the astounding news about that little picture hanging on our refrigerator."

The study involved over 10,000 sponsored children and has been academically vetted.   One of the quotes:

 "You could beat this data senseless, and it was incapable of showing anything other than extremely large and statistically significant impacts on educational outcomes for sponsored children."

It is incredible how powerful a small investment each month is in the life of a child.    Visit Compassion International's site to learn more about their work.

Why Measure Impact

The finding that intrigued me the most from the Nonprofit Finance Fund survey was that 53% of the 6,000 respondents regularly collect data on the impact of their programs.  I thought the number would be higher.  In a time when nonprofits are facing government funding cuts and will be looking to individuals and businesses for more funding, they need to be measuring and communicating impact.

The 53% that measured impact corresponded closely to 54% of respondents who noted that funders ask them to measure long term impact.  While the survey does not note that the same nonprofits who measure impact are the same ones who are asked to do so, the similar percentages lead me to believe that is the case.

The number one reason nonprofits did not measure impact was that they noted they did not have enough time (69%).    The other reasons related to not having enough knowledge to measure impact.  These reasons included:  impact is not easily measurable (54%); no resources to hire an outside consultant to help collect data (52%); and not having the right staff expertise (40%).

Nonprofits must make the time to measure impact.   If they cannot explain to their donors, staff, and stakeholders that what they do makes a positive difference, how will they sustain the organization?

Now I know that studies show that 2/3 of donors give without consideration of the data.   I also know that many organizations provide services to recipients that they cannot track in the long term.

But consider this—1/3 of donors do give with consideration of the data.  So those organizations that regularly measure impact will appeal to more donors and be better positioned to thrive.  

On the difficulty of measuring long term impact, nonprofits need to engage in robust conversations, locally, regionally, and nationally to make sure that what they are doing is truly impacting the community.  They need to clearly define how they will validate and measure the impact.   Small local nonprofits can and do use national studies that refer to research based results.    This can provide the long term impact statistics that some donors consider.

Of all the survey results, this is the number to improve.  Over time, if this number increases and the impact is communicated to donors, staff, and stakeholders, not only will the financial viability of nonprofits improve but the impact of the nonprofit sector on the community will improve as well.

Reflecting on the Nonprofit Finance Fund survey

Nearly 6,000 nonprofits participated in the Nonprofit Finance Fund survey from all over the country.   Nearly ½ the organizations were between $500,000 to $5 million in revenue.    Most (40%) of the organizations were human services organizations with arts & culture (16%) and education (14%) the next two largest.   A few notable statistics:

Only 30% of the organizations received federal funds.  About ½ of the organizations received state and local funds.  Of those who received state and local funding, 63% received the same or more funding in 2012 as they did in 2011.  The % was about the same for federal monies.  I had expected government funding to decrease.  Based on the federal debt and looming state pension benefit funding requirements, I suspect these figures will go down in the future.   

I had also expected that more nonprofits would have less cash on hand.  However 44% had 4 or more month’s expenses on hand and 32% had 2-3 months.    It is not good—especially for those organizations that are likely to experience cuts in government funding.   And 25% of those responding to the survey had one month or less, which is very sobering.   But considering how lean the last few years have been, the nonprofits have really worked hard to hang onto some reserves.

The section of the survey on organizational management actions related to finance and operations asked respondents to check off actions they had taken from a list of prepared actions (in other words—it was not an open ended question).   I would have expected the highest responses to include changing the way funds were raised and spent.   However, that was actually the 4^th most frequent response (39%) compared to attending conferences and networking (58%); advocating to the government on behalf of cause (46%) and upgrading technology to increase efficiency (46%).     Many nonprofits had already pursued funding differently and cut expenses in prior years.    Nonprofits had cut back and even eliminating attending training.  We see a lot of great networking and collaboration come out of seminars.  It is great to see that nonprofits are able to get out again for training and networking.

The statistic that jumped out at me the most was on measuring impact—that is a whole post in itself so I will address that next time.

2013 Nonprofit Finance Fund Survey

Economic challenges continue while demand grows.  This is the primary message from nearly 6,000 nonprofits in the Nonprofit Finance Fund’s 2013 survey.  There is so much great information in here I want to take a few posts to explore it. 

The summary of the survey does a nice job grouping findings into several areas and concluding the following:

1. Nonprofits need new funding sources and models

2. Nonprofits that receive government funding face particular challenges

3. Under these challenging conditions, many nonprofits are unable to meet growing need in their communities

4. Nonprofits are changing the way they do business to adapt to the new reality. 

 Graphs, charts and pictorial representations clearly communicate the results making this a quick but powerful read.

What We Can Learn from the Dodge Dart Registry

The Dodge Dart commercial aired last night while we were watching TV (watch it here).   "Dad buys the engine. Grandma buys the rims.  Family and friends kick in and when its fully funded, its yours!"   We initially thought it was a spoof on the bridal registry.  But its real.   Check out the site here  

As the commercial ran and "100% funded" flashed across the screen--I didn't think bridal registry though--I thought nonprofit fundraising.  Give people something tangible to be part of and experience.  Several organizations already do this in varying ways.

Samaritans Purse

Habitat for Humanity

Compassional International

and our local Twilight Wish

How can you create an image of what you do and have donors invest in parts of the whole?

IRS Exempt Organization Focus for 2013

This post from Nonprofit Quarterly discussed what areas the IRS has targeted for 2013 with regards to nonprofit organizations.   A few notable areas:

1-Nonprofits that report unrelated business income, but don't file the form 990-T for unrelated business income
2-Nonprofits that report significant unrelated business income but don't show any profit for the income
3-Regulations and guidance for supporting organizations
4-Regulations for church tax inquiries and examinations

The article also noted the reduction in IRS audits of exempt organizations, the reduction of staff in this area, and the tasks mandated by the health care act that further reduce their available time for audits.   Over a period of 30 years, only one of our nonprofit clients was audited by the IRS and it turned out to be a random selection of a small nonprofit client to train the IRS agent. 

Regardless of whether or not you are likely to be audited by the IRS, your 990 needs to be accurate, transparent, and compliant.  More and more donors are accessing nonprofit 990's on Guidestar.  This comes up in our conversations with businesses and individuals when they are making donor decisions or if they are deciding to serve on a Board.  It is also coming up in conversations with estate attorneys who advise their clients to research the organizaitons they note in their wills.  If you are following the 990 instructions and providing clear information on your 990, it can increase your favor in your donors' eyes.

Thanking Volunteers can get you in trouble with the IRS

Nonprofits thrive through their volunteers.   When looking to say "thank you" some nonprofits may consider issuing gift cards.   This post by Katie Thomas, CPA with Henry & Home in Arizona reminds you to consider the implications of gift cards for volunteers.   Thanks to Jim Ulvog for highlighting this post in his blog-Nonprofit Update.