Independent Sector is the only national membership organization that brings together the charitable community—a diverse set of nonprofits, foundations, and corporations—to advance the common good. The charitable sector provides millions of people with powerful, independent, and voluntary methods for addressing the issues and expressing the values most important to them.
Small Nonprofits (Fewer than 500 Employees)
Large Nonprofits (More than 500 Employees)
As nonprofit leaders, you’re facing unprecedented times in managing your workforce while also trying to maintain the level of quality in community services you’ve provided before the COVID19 crisis.
Last Friday, the $2 trillion federal stimulus package "CARES Act" passed that could offer direct relief for your organization.
I am writing to provide a summary for you of strategic options to consider as you wade through the health and economic crisis.
Under the CARES Act, unemployment benefits are confirmed upon application AND benefits are upped an additional $600/week (bringing total benefit to $800-$900/wk).
If you think it’s inevitable that you may eventually have to lay off workers soon, it might make more sense to lay off your staff immediately to unlock this program's benefits. Do the math, see if this makes sense for your team members and your operations. This program is here to help you get through this.
The CARES Act also provides up to $10,000 advance for payroll expenditures (this is called an Emergency Economic Injury Disaster Loan, approved within three days of application). If you then plan to “rehire” May 1, you could use this loan to help get you through the month of May. Then by June, it’s likely (fingers crossed) the quarantine will be over and you can fully re-open to meet client needs. This is really more like a grant, it does not need to be repaid.
This route might be able to get you through at least one month of payroll and then some payroll relief for the month of May. Something to talk to your financial advisors about, every organization is unique and requires a unique strategy.
ADDITIONAL CARES ACT BENEFITS FOR NONPROFITS
If you haven’t done so already, reach out to your legal and financial counsel as soon as you can to determine what the best options are for your organization. In Indiana, we recommend Kruggel Lawton CPAs (Margene Zink mzink[@]klcpas.com) for accounting information and South Bank Legal for legal matters. Elsewhere, let me know if you’re looking and I will get you a good referral.
I am not a lawyer or a CPA. I am offering ancillary support as a nonprofit administration consultant who wants to see your important organization get through this whole and on your feet.
Feel free to reach out using our contact form if you have specific questions or need assistance during this tough period.
If you're passionate about a certain issue or cause, you may decide to go beyond donating your time and money to a charitable organization and start a new nonprofit.
But before forming a nonprofit for personal fulfillment, there are a few crucial financial and logistical steps to address, including financing and taking advantage of tax exemptions to ensure the organization can solely focus on its core mission, not unnecessary expenses. You'll also want to consider whether you have the time to start a nonprofit, and if you'll need to be paid for the time you put into creating and operating the organization.
Choosing whether or not to receive a salary is one of the fundamental differences between launching a nonprofit versus a for-profit business. With a for-profit business, you can earn as much as your business can afford to pay you; with a nonprofit, if you generate more than what the IRS considers "excessive," you could pay an excise tax and lose your tax-exempt status.
So, if you're contemplating forming a nonprofit, there are a number of factors you'll need to consider to meet your organization's goals. With that in mind, here's what you need to know to get started.
Research the prospective charitable cause. Conduct a competitive analysis to determine if there are other organizations addressing the same issue. If there are competing nonprofit organizations, it doesn't mean you shouldn't start a new nonprofit, but you do want to know the lay of the land, says Caitlin Worm, managing director of Blackbird Philanthropy Advisors, a nonprofit based out of South Bend, Indiana, that works to help businesses be strategic about their philanthropic giving.
"If you can't find anyone doing the same exact thing, it could be a good sign, but maybe you can find an organization that does similar work and help them build a program to help your intended population rather than building a new organization from scratch," Worm says. "It's always a good idea to make sure you are not replicating services already being offered at satisfactory levels. ... For example, if you want to start a food bank, you may want to do a search for food banks in your community and find out what works and what doesn't work before you start a new one on your own."
Consider incorporating your nonprofit. The process varies by state, but you'll likely need to register your nonprofit with your secretary of state's office, which typically requires a filing fee (in Ohio, for instance, it requires a $99 fee). You'll also want to choose a corporate name for your nonprofit.
Weigh the pros and cons of tax-exempt status. If you've done your research, and you're certain that there is a need for your nonprofit, you'll want to make sure the IRS agrees.
James Hsui, a New York-based attorney who specializes in offering legal advice to nonprofits, says that most nonprofits that are exempt from taxes are under Section 501(c)(3) of the U.S. tax code. "However, Section 501(c)(1) to 501(c)(29) all describe tax-exempt entities that could be classified as a nonprofit, and it is also not a requirement for nonprofits to be tax-exempt," Hsui says.
How do you decide whether or not to file for tax-exempt status? Whether you seek out this tax exemption is something you should discuss with an attorney like Hsui, but assuming you're going to form a 501(c)(3) nonprofit, you'll be involved in a two-step process. First, you'll need to form the nonprofit as a corporation, trust or unincorporated associated with your state. "For most nonprofits, the corporation is often the best option because it provides the broadest amounts of liability protection for its directors, officers and other insiders," Hsui says. "Once the underlying entity is established, the next step is to apply for the entity to be recognized as a tax-exempt 501(c)(3). This involves filing either Form 1023 or 1023-EZ with the IRS."
The latter form is faster, but if you expect to receive more than $50,000 in annual gross income for the next three years -- or you're starting a church or school -- you need to fill out Form 1023, Hsui says.
"If everything goes well with the application for recognition, the entity will receive a favorable decision letter usually somewhere between two weeks and nine months," Hsui says. He adds that the time it will take to hear back from the IRS will depend on factors such as what type of form was used, the current backlog of applications, the complexity of the nonprofit's activities and whether any issues of concern were found by the officer examining the application.
"I highly recommend hiring a lawyer, tax advisor or business consultant to help you walk through the steps of the form correctly the first time or you could risk having your application rejected or sent back for revisions," Worm says. "There are horror stories of these revisions and resubmit processes taking months, if not years, to complete because of minor errors on the application."
Assemble a board of directors. If you're serious about starting a nonprofit, you'll need a board of directors. In fact, when you register your charity, you'll need to provide the IRS with names of three individuals who are your board of directors. Also, keep in mind the IRS prefers that the organization's board of directors are unpaid. You are allowed to have more than three board of director members, but experts suggest making sure your number is uneven, so when you have big decisions, such as how to spend money, you won't have a tie.
Remember: Nonprofits require financing. Starting a nonprofit is tough enough, but running it indefinitely isn't easier. You'll need to have an interest in raising money or your board will need to be passionate about it. It's also beneficial to have a business plan. You'll want to create a road map that shows a fundraising and operational plan, and include an executive summary to entice organizations and foundations to offer grants for your nonprofit.
"Startup nonprofits need to have board members who will aggressively and unashamedly lead, bringing in donations and other influencers that can help the nonprofit grow and get the traction that will lead to a healthy, sustainable inflow of donations," says Peter Dudley, chief development officer of Cancer Support Community San Francisco Bay Area.
That's because fundraising will be a big part of your nonprofit's existence. "I've seen a lot of nonprofits struggle with cash flow because they underestimate the amount of time it takes to bring in donations. People passionate for their work often think that passion will translate into donations, and they also think that if a person will donate to this, then they will donate now," Dudley says.
But it doesn't always quite work out that way. "In reality, a lot of people who are willing to donate will need to be asked several times, over a period of time, before writing that first check," Dudley says. "People often will also want to see some traction or a critical mass before writing bigger checks. They'll donate $25 or $50 but will wait until you're established before giving at a personally meaningful level."
The closer details of charitable deductions on taxes only matter if a person is itemizing deductions on their tax filings. If so, you are able to deduct contributions up to 50% of your adjusted gross income when they are made to qualifying 501(c3) entity or other qualifying organization. Some organization types only qualify for a 30% limitation private foundations, others qualify for a 60% limitation (federal government units).
If you’re concerned with the tax-deductible status of your donations, you may request verification from the charity of your choice (ask to see a copy of their latest IRS 990 or a copy of their IRS 501(c)3 determination letter). You can also use irs.gov or guidestar.org to search for documentation.
What can and can’t be deducted?
In order for a donation to be deducted, it needs to be truly charitable. No goods or services can be received in exchange for the donation that is considered tax-deductible.
If you attend a charity dinner and paid $500 for your ticket, you’ll need to find out how much was spent on the meal and beverages you received because you are only allowed to deduct the amount that exceeds the cost of your event attendance. Similarly, charity concerts, golf outings, and auctions are all types of events when your full donation amount may not count toward your charitable donation. You may pay $500 to play in a charity golf outing but find out that the charity spent $300 per player for gifts and greens fees. In this case, you would only be able to deduct $200, not the entire $500 you spent.
It is up to you and your accountant to determine this amount by coordinating with the charity. If the charity is doing their job correctly, they will make it easy for you by adding it to the gift acknowledgement. For example, it should read: “$100 contributed. $60 total deductible donation after receipt of goods and services.”
Do people need to keep track of receipts?
Everyone should keep careful track of charitable contribution receipts, just as they would any other household or business expenses. Most nonprofits have a donor database system to keep records on gifts though and should be able to print you a new one should you lose yours. Some nonprofits will mail out a statement of giving around January or February each year which will include a complete history of your giving for the year – this document can be used for accounting purposes in place of the receipts of each individual gift you made to them that year.
Blackbird Philanthropy Advisors Featured in Cheapism Article on "How to Get Tax Breaks Through Charitable Donations"
GET TO GIVING
As the clock winds down on 2018, many people are scurrying to make their final charitable donations of the year and tally up ones already made. In 2017, Americans gave $410 billion to charities, an increase of five percent over the previous year. For those looking for ways to make the most of charitable donations before the end of the tax year, here are some tips and insights from experts around the country.
KNOW THE NEW TAX LAWS
Under the new tax laws recently adopted, the standard deduction for filers has roughly doubled. It’s now $12,000 for single filers, $18,000 for head of household, and $24,000 for joint filers. Those increases will likely have a profound impact on people’s interest in making charitable donations. “If you’re taking the standard deductions, you cannot itemize,” explains Mark Charnet, founder and CEO of American Prosperity Group. “That’s going to horribly dissuade people from making charitable donations. Unless they itemize on their taxes, they will not get a reduction on their tax bill for the charitable contributions and therefore will be disincentivized to make donations.”
KNOW HOW MUCH YOU CAN DEDUCT
The law generally allows for deducting contributions up to 50 percent of your adjusted gross income, when such contributions are made to qualifying 501 (c)(3) entity or other qualifying organization, explains Caitlin Worm of Blackbird Philanthropy Advisors in South Bend, Indiana. “Some organization types only qualify for a 30% limitation, such as private foundations, while others qualify for a 60% limitation, such as federal government units,” says Worm.
RESEARCH WHERE YOUR MONEY WILL GO
If you’re planning to donate to a non-profit organization, otherwise known as a 501(c)(3), find out how your contribution will be used. How much will go toward the cause and how much goes toward administration? A variety of third-party evaluation and ratings sites can help with this effort, such as the Better Business Bureau’s Wise Giving Alliance, Charity Navigator, and Charity Watch, which review a charity’s finances, governance and effectiveness. “Better ratings will indicate that the organization allows for the majority of the donations to go right to the cause,” says Jacob Dayan of Community Tax.
Many people wonder if their volunteer time at a charity completing professional tasks can be deducted on their taxes. You cannot deduct the value of services rendered in volunteer service to a nonprofit. You can, however, deduct the expenses you incurred while volunteering or traveling to and from the volunteer assignment.
Example 1 - The Artist:
An artist who paints a mural on the wall of her local local Boys & Girls Club can deduct the cost of paint, paint brushes, and other supplies needed to complete the mural. She can also deduct the gas mileage it took to get to and from the charity to complete the volunteer service. She cannot deduct for the time it spent her.
Example 2 - The Nurse:
A Red Cross volunteer who is a Registered Nurse travels to Florida to help with hurricane disaster relief recovery. He can save the receipts for his airfare, lodging, and meals while on assignment. He cannot calculate the hours he spent working as a nurse for Red Cross and deduct the pay he would have been paid in his workplace.
Always consult with your tax advisor to be certain.
Many people wonder if it makes sense to donate property, cars, or other valuable items to charities in order to receive a tax donation.
Nonprofits are chronically short on cash and always in pursuit of seeking full sustainability. Of course, most charities will accept donations of all kinds but sometimes donations can be more of a hassle than the net benefit. There are horror stories of benefactors donating property, jewelry, art, or cars to a nonprofit where it took more staff time to sell and manage the goods than they received in net contributions. Make sure your donation will be an easy and manageable transaction.
If a charity uses your property, car, art, or valuable items to carry out their programs and services, you may be able to deduct the full “Fair Market Value.” However, you may need an official, written appraisal. If the property, cars, or valuable items are worth more than $5,000 you will need a written appraisal from a qualified appraiser.
On the other hand, if the charity sells your property, car, or valuable items for less than your appraised value, you may only deduct the amount the item was sold for, not the pre-determined market value. Example: If you donate a car to Boys & Girls Club for the estimated value of $3,500 in August but they were only able to sell it for $3,000 in December – then you can only deduct the final sale value of $3,000.
Veer over to the IRS website to learn more before making your big donation:
A Donor's Guide to Donating a Car
Determining the Value of Donated Property
Feel free to reach out to us if you have additional questions or need us to translate some of the IRS technical language. We're also happy to review your pledge and give you guidance on the best course of action.
Blackbird Philanthropy Advisors is a social enterprise devoted to Driving impactful and innovative change through philanthropy. Based in South Bend, Indiana, USA.