‘Tis the season: Tips for end-of-year donations

Happy holidays! While our writers take a couple of days to savor the season, we thought you might enjoy this classic post (which originally appeared here).

It’s December, which means you’ve probably started getting requests for donations from worthy causes. Here in the U.S., the income tax rules and the holiday spirit both nudge in the same direction: give what you can, before January 1.

Here are three tips for making gifts that matter. (And matter they do, no matter the size!)

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From Flickr user Alexandra Campo

Tip #1: Understand the tax rules.

If you choose to itemize deductions on your income tax return and you want to include your charitable contributions in the mix, then it’s important to follow the guidelines that the law, and the IRS, have established:

  • the organization must be eligible (usually it will say so in the materials);
  • you’ll need a receipt or some other documentation of the amount;
  • and the gift must be made before the 1st of January to go on this year’s tax return.

There are other, more complicated, rules about larger gifts and in-kind donations. And if you don’t itemize deductions, you still get some credit in the standard deduction. These are calculated using the giving habits of all non-itemizing households. Check the IRS site if there’s anything unusual about what you’re planning to do.

Tip #2: Choose wisely.

Maybe you’re getting a lot of requests, more than you can afford to give. How do you get through the thicket of year-end appeals that tug at your generosity? If you don’t have a personal philanthropy plan, you can make a simple one:

  • Decide on an amount you’re willing, and able, to give. The average household donates about 2 percent of disposable income each year.
  • Consider the organizations you already know, and know you want to support, so you can decide how much to give to each of them.  Then you’ll know how much you might have left over to respond to new requests.
  • If you’re thinking of giving to a new organization, ask yourself “What does this organization do?” and “Do I admire how they do it?” With nearly 2 million nonprofits at work in the U.S., there are lots to choose from.  Looking at websites, reading fundraising appeals, and searching online to see what others have said about the group are good ways to see how strongly the goals, and the methods, appeal to you.

Tip #3: Maximize.

Financial data—the sort of information many charity “watchdogs” focus in on—can only take you so far.  Some causes are hard to administer, others are hard to raise money for.  Spending less than counterpart organizations doesn’t necessarily mean greater efficiency, it may just mean a different approach to the problem.

There are some things donors can do to help put the maximum resources to work, though:

  • Respond quickly to requests, especially to renewal notices.  It costs money to prepare mailings so a quick response, even if it’s a “not this year,” is doing the organization a favor.
  • Consider making fewer, larger gifts. That will focus your support on program work, not processing costs.
  • Positive you won’t ever support Organization X? Ask them to take you off the mailing list so they won’t waste their money on appeals addressed to you.

Finding the money to build stronger, healthier, more lively communities is hard work. With a little preparation and some thought, your year-end gifts can support that work and make an important difference for causes and organizations you care about.

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Nonprofits have tax deadlines too

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Photo by Alan Cleaver (Flickr/Creative Commons)

If you hurried to the Post Office today to pay your taxes or claim your refund, you’re in good company. Estimates are that 25% of U.S. taxpayers file on the last day each year. But don’t expect long lines at the post office; the IRS is hoping 80% of returns will be filed online, up from 77% last year. The deadline (technically tomorrow this year because of a holiday in Washington, DC) is critical for individual taxpayers – filing late results in penalties and interest for everyone.

Nonprofits get a break on their filing deadline in two ways: First, the due date for organizations with a December 31 fiscal year end is not until May 15th. And second, larger organizations can get an automatic six-months extension to pull their records together just by filing Form 4868.

But the risks for nonprofits of not filing at all are pretty dire. More than 400,000 entries have been removed from the roster of tax-exempt organizations since a 2006 law took effect. The IRS is now required to cull out of the list recognized organizations that don’t file the required reports for three consecutive years. When that happens, donors can’t take deductions from their personal taxes (and may have to file amended personal tax returns – a double whammy) and the organization will probably have to start all over again—filing a new application for recognition and paying the fees—if it wants to continue to operate. Not a good thing.

The “information return” that nonprofits file is called IRS Form 990. It comes in several versions. Time and trouble can be saved by picking the right one.

  • Use Form 990-N (the “e-postcard”) if total revenue from all sources is normally less than $50,000 per year. Note that Form 990-N is only available online (there is no paper verson) and, though there’s no penalty for filing late, there’s also no way to get an extension. So that three-times-you’re-out rule applies to an organization that missed the last couple of years and then files late this year.
  • Use Form 990-EZ if total revenues (the IRS calls it “gross receipts”) are less than $200,000 and total assets are less than $500,000.
  • Bigger organizations use the full Form 990. And private foundations have their own different version called Form 990-PF.

The Urban Institute offers an electronic filing service for groups that need to do a 990-EZ or a full 990 and don’t have anyone else to do it. Information about how that works is online at efile.form990.org. The service is free for organizations with less than $100,000 in revenue and carries a small fee for groups with larger annual budgets.

Larger organizations will usually have staff or outside help with accounting and bookkeeping to keep them on track with these requirements and deadline. Smaller organizations need to be sure they have clear answers to a short, but important, list of questions:

  • When is our filing deadline? It’s always four months and fifteen days after the end of the last fiscal year.
  • What do we need to know to be sure we stay current with all these rules and regs? The IRS website is a good place to start – a list of frequently asked questions is here.
  • Who is going to file our Form 990-N? It takes a few minutes, access to a computer, and knowing the answers to a few simple questions. But somebody has to do it.

If you’re not sure all three questions have been answered for an organization you care about, then tomorrow—after your personal tax return is safely on its way—would be a good time to start getting things sorted out to be sure everything goes smoothly this year.

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Nonprofit Finance Fund survey deadline: Feb 15

Another day, another dollar, another survey

imageEach year, the Nonprofit Finance Fund surveys U.S. nonprofits. The goals are to document the issues being faced by community-serving organizations and to identify ways the fund itself, and other supporters of the work of nonprofits, can be most useful.

It takes maybe 15 minutes to complete the survey, which requires a pretty broad knowledge of an organization’s activities – from the state of the finances to relationships with funders to the board of directors.

Do you have that knowledge? Take the survey today! And if that’s not you, consider passing the request along to someone who has a good handle on how things are going. The survey closes on February 15.

Why take the survey?
Accurate information about what nonprofits can and can’t do is really important now as governments at every level struggle to meet community needs. Many foundations are cutting back on grants; others are shifting their priorities to meet new challenges; and individuals—whether donors, patrons, visitors, or clients—are feeling the pinch and watching their wallets with new caution. Accurate and up-to-date information about the state of nonprofits and their finances will help policy-makers, philanthropists, and program managers avoid mistakes that could make a bad situation worse.

Want to learn more about nonprofit finances?

Here are more resources:

  • The Urban Institute’s annual fundraising survey, conducted with the Center on Philanthropy at Indiana University and other collaborators.
  • From the IRS, a new search tool that allows you to check on the exempt status of an organization directly on the web.
  • The final version of the Form 990 for 2011 (the one larger organizations will need to file by May 15, 2012) is now available for download (PDF). The form 990-EZ will be published soon. There is no change in the Form 990-N (“e-postcard”) used by small organizations to maintain exempt status.

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Worse than we thought! 275k nonprofits just lost their status

There were 275,000 names on the list of organizations that have automatically lost tax-exempt status. Earlier guesses were that the list, published by the IRS on June 8, might have included as many as 200,000 names.

What happened?

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At least you know you're not alone? (Photo: dingler1109, Flickr/Creative Commons)

In 2006, Congress passed a law requiring all tax-exempt organizations to file a report annually with the IRS. The new part was that for smaller organizations the law created a new form, called the “e-postcard” 990-N. Small organizations had never been required to file such a report before. And this new law said that any organization that failed to file a report for three consecutive years would automatically have its tax-exempt status revoked. The 275,000 organizations on the list the IRS released on Wednesday were ones that have not filed for more than three years, and missed many mailings and press releases (and, ahem, Idealist blog postings) about the new rules.

Is my organization on this list?

The Chronicle of Philanthropy has a searchable database of the whole list of online. I found 39 names in my Seattle ZIP code in just a couple of seconds. The IRS itself also posted the list, in the form of state-by-state Excel files that can be downloaded.

What happens now?

For organizations that aren’t on that list, nothing. To double check on exempt status for any organization, look in IRS Publication 78 or the corresponding online database.

For organizations that find themselves listed, the IRS has set up a special process to facilitate reinstatement. All the details are explained in an IRS statement about the process. Small organizations may be able to retroactively returned to exempt status for $100; larger organizations may find the process more difficult and more expensive.

The National Council of Nonprofits has a detailed Tipsheet [PDF] with advice about what an organization finds its name on the list when it shouldn’t be.

The takeaway

One lesson here is that very small, all-volunteer organizations need to take extra care to be sure legally required annual filings are taken care of – not just to the IRS but to state and local government reports as well. What strategies do you use to stay on top of this sort of do-or-die date on your calendars?

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U.S. nonprofits: Monday is the deadline for lots of 990s

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The clock is ticking! Photo via Flickr user Elaron (Creative Commons)

Nonprofits with a January to December fiscal year probably need to file a Form 990 with the IRS by Monday, May 16.

Oops…how do I know if it’s time to file?

The deadline for 990s is 5.5 months after the end of the organization’s fiscal year. If December 31 was the end of the year, then May 15 is 5.5 months later.

What happens if I don’t file in time?

If the last time a 990 was filed was in 2008, and none has been filed since, then the new three-years-and-you’re-out rule will apply this year. The IRS will automatically remove the organization from the list of recognized nonprofits when this year’s deadline is missed. If you’re responsible for your organization’s filings and you’re not sure things are up to date, then now would be the time to check! There are also penalties for just filing late even if the earlier year forms were filed, so getting on top of these deadlines has to be a priority.

How do I file?

Here are the thresholds that dictate which version of the Form 990 to file:

  • If gross receipts are normally less than $50,000 per year, then the form to use is the e-postcard called Form 990-N. You answer a few short questions online as explained at http://epostcard.form990.org/. The Urban Institute contracts with the IRS to operate the website for filing the 990-N.
  • If gross receipts are more than $50,000 and less than $200,000 (and total assets are less than $500,000), then the form to use in the 990-EZ.
  • Larger organizations use Form 990.

You can also file the 990-EZ and the full 990 online using tools developed by The Urban Institute. This is free for organizations with gross receipts under $100,000; there’s a fee for larger organizations.

Filing online offers many advantages: less chance of errors; no fat envelopes to mail with return-receipt requests at the post office; quicker and more efficient handling for the IRS.

I need more time!

Unless the process got underway a while ago, it may be too late to get everything done by the end of the day next Monday. If you’re a little behind, there’s just one form needed for an automatic three-month extension! All you have to do is file Form 8868 online at Form990.org.

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For some nonprofits, help with employee health insurance

Part of the health care reform bill passed last year gives a tax break to small nonprofits that provide health insurance to their employees.

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From Steve Snodgrass / Flickr Creative Commons

“But how can this be?” you may ask. “Nonprofits don’t pay taxes, do they?”

Well, that’s a complicated question in its own right (we have a whole page about it here), but in this case, an organization that qualifies can keep part of the Medicare taxes and income tax-withholding money it normally would transmit to the Treasury and use it to offset part of the cost of employees’ health insurance. Note: the employees still get full credit toward social security and next year’s tax bill thanks to the way this program has been designed.

The maximum credit is available to organizations with fewer than 10 employees and average wages under $25,000; orgs with more than 25 employees or average wages over $50,000 are not eligible at all.

As you might expect, it’s a little complicated. Figuring out whether an organization qualifies requires knowing a good deal about its finances and payroll. Knowing which forms to use and how to fill them out requires understanding the details of this program works. Luckily, there are a couple of resources that will help puzzled Executive Directors or Human Resources professionals:

Any organization that looks like it may qualify for the tax credit based on the National Women’s Law Center’s chart may want to have someone attend the IRS webinar to get a first-hand presentation of the details. More information and a link to the webpage for registration is on the IRS website here.

For organizations that qualify—and their employees—this feature of the health care reform bill can be an immediate benefit.

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'Tis the season: Tips for end-of-year donations

It’s December, which means you’ve probably started getting requests for donations from worthy causes. Here in the U.S., the income tax rules and the holiday spirit both nudge in the same direction: give what you can, before January 1.

Here are three tips for making gifts that matter. (And matter they do, no matter the size!)

featured

From Flickr user Alexandra Campo

Tip #1: Understand the tax rules.

If you choose to itemize deductions on your income tax return and you want to include your charitable contributions in the mix, then it’s important to follow the guidelines that the law, and the IRS, have established:

  • the organization must be eligible (usually it will say so in the materials);
  • you’ll need a receipt or some other documentation of the amount;
  • and the gift must be made before the 1st of January to go on this year’s tax return.

There are other, more complicated, rules about larger gifts and in-kind donations. And if you don’t itemize deductions, you still get some credit in the standard deduction. These are calculated using the giving habits of all non-itemizing households. Check the IRS site if there’s anything unusual about what you’re planning to do.

Tip #2: Choose wisely.

Maybe you’re getting a lot of requests, more than you can afford to give. How do you get through the thicket of year-end appeals that tug at your generosity? If you don’t have a personal philanthropy plan, you can make a simple one:

  • Decide on an amount you’re willing, and able, to give. The average household donates about 2 percent of disposable income each year.
  • Consider the organizations you already know, and know you want to support, so you can decide how much to give to each of them.  Then you’ll know how much you might have left over to respond to new requests.
  • If you’re thinking of giving to a new organization, ask yourself “What does this organization do?” and “Do I admire how they do it?” With nearly 2 million nonprofits at work in the U.S., there are lots to choose from.  Looking at websites, reading fundraising appeals, and searching online to see what others have said about the group are good ways to see how strongly the goals, and the methods, appeal to you.

Tip #3: Maximize.

Financial data—the sort of information many charity “watchdogs” focus in on—can only take you so far.  Some causes are hard to administer, others are hard to raise money for.  Spending less than counterpart organizations doesn’t necessarily mean greater efficiency, it may just mean a different approach to the problem.

There are some things donors can do to help put the maximum resources to work, though:

  • Respond quickly to requests, especially to renewal notices.  It costs money to prepare mailings so a quick response, even if it’s a “not this year,” is doing the organization a favor.
  • Consider making fewer, larger gifts. That will focus your support on program work, not processing costs.
  • Positive you won’t ever support Organization X? Ask them to take you off the mailing list so they won’t waste their money on appeals addressed to you.

Finding the money to build stronger, healthier, more lively communities is hard work. With a little preparation and some thought, your year-end gifts can support that work and make an important difference for causes and organizations you care about.

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They really, really mean it this time: 990s due Friday 10/15!

From Flickr user Creative Liverpool (Creative Commons)

As the IRS and a chorus of others have been saying ever since Congress passed the new rules in 2006, every (that’s every*) nonprofit with tax-exempt status has to file a Form 990 every year. Organizations that fail to do that for three years in a row will lose (that’s lose) their tax-exempt status, and donors will no longer be able to claim a tax deduction for supporting them.

The final (extended) deadline is this coming Friday, October 15, 2010.

The IRS EO Update for October 7 has lots of advice on the subject. There are two previous Idealist blogs that give more background if you’re curious: on April 30th and July 29th.

But, really, this is not the time for curiosity. If you care about an organization that’s at risk of losing its tax-exemption because it hasn’t been paying attention, or thinks the warnings aren’t serious, now would be the time to nudge, nag or just plain harass them into getting the necessary report to the IRS by Friday.

Back in May, the Commissioner extended the deadline until October 15, 2010. It won’t be extended again. They really, really mean it this time.

    * There actually is an exception for bona fide religious congregations; in general, groups that qualify for this exception know the rules and don’t have anything to worry about. If the leadership isn’t sure, though, now would be the time to figure it out.

[This blog entry appeared on an older version of Idealist; any broken links are a result of having re-launched our site in Fall 2010.]

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    Will 200,000 U.S. Nonprofits Vanish in Two Weeks?

    By Flickr Lukas (Creative Commons)

    Will hundreds of thousands of nonprofits disappear on May 16? If they do, it won’t be because cigar-shaped spaceships hover over neighborhoods and use tractor beams to haul community-serving organizations off to an alien planet.

    But it’s very possible that the IRS list of U.S.-based charitable organizations will shrink by something like that number shortly after May 15 of this year. That’s because the “Pension Protection Act of 2006″ included a requirement that every organization on the list file some sort of report every year and, further, that any organization that misses three years in a row must be removed from the list. There are a lot of groups that haven’t been heard from in three years. May 15 is the deadline for filing with the IRS for any organization whose fiscal year ended 12/31/09. Here’s a New York Times report on the situation.

    There are several different forms that organizations of different sizes use for filing with the Internal Revenue Service:

    • Nonprofits with less than $25,000 per year in revenues use Form 990-N. This is an “electronic postcard” that asks for just eight items of information. There is no paper version — the 990-N must be filed online. The IRS has a detailed explanation and a link to the webpage for filing the form at http://www.irs.gov/charities/article/0,,id=169250,00.html. There’s also a link on that page that allows searching for any organization so it’s relatively easy to check and see whether an organization of interest is up to date in its filings.
    • Organizations with less $500,000 in revenues and less than $1.25 million in assets for the 2009 tax year can use Form 990-EZ.
    • Larger organizations use Form 990.
    • And private foundations use Form 990-PF.

    The National Center for Charitable Statistics (a division of The Urban Institute) offers a tool for electronic filing From 990-EZ or Form 990. Using the tool is free for organizations with less than $100,000 in revenues with a sliding scale of fees starting at $35 for larger groups. There’s an introduction to online filing and a full explanation of the service at http://efile.form990.org/.

    The Form 990 is due to the IRS five months and 15 days after the end of the filing organization’s fiscal year. Groups that started a new fiscal year on New Year’s Day should have their report in by May 15. The sky probably won’t be dark with alien spaceships on that day, but a lot of organizations are in line to wake up the next morning with a tiresome problem. If there’s any chance an organization you care about is going to pass that three-years-without-filing mark, now would be a good time to get going on getting the Form ready to file by the due date.

    [This blog entry appeared on an older version of Idealist; any broken links are a result of having re-launched our site in Fall 2010.]

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    Governance Matters: U.S. Nonprofits and the IRS

    From Flickr user cliff1066 (Creative Commons)

    The part of the United States Internal Revenue Service that deals with nonprofits has a new chief. Sarah Hall Ingram, a long-term IRS employee and now the Commissioner for Tax-exempt and Government Entities, came to the job late in the spring. Her first public statements emphasized continuity, though, as she reiterated the IRS commitment to pressing for attention to the way nonprofits govern themselves and the way IRS agents examine nonprofits for compliance with tax rules and careful practices. “It is fair to ask all organizations,” she said at Georgetown University Law Center on June 23, “whether they have in place systems, safeguards, or controls to minimize the risk of events occurring that contravene the Internal Revenue Code’s requirements for tax-exemption.”

    Some of the questions the IRS will be asking are in Part VI of the new “Core” of Form 990 — a series of yes/no inquiries about important, and widely adopted, practices. And more questions will be asked, Ingram made clear, if an IRS examination is underway and there’s any hint that the board and staff have been slighting their responsibilities to stay true to the mission and stay away from anything that might blend private gain with tax-exempt status.

    At the same seminar on governance at Georgetown, Diana Aviv, President of Independent Sector, unveiled a new “Workbook” for boards to use alongside the Principles for Good Governance and Ethical Practice IS published recently. The 33 “principles” were worked out through an extensive program of consultation with legal experts, nonprofit leaders, and researchers. They point to areas in the leadership of nonprofits where all too often trouble can brew. And they offer advice about what standards should apply in developing — and administering — policies that protect against trouble and provide a firm foundation for dealing with any issues, or doubts, that might arise. The “Workbook” translates the principles into action-steps that boards can take, working with staff (and a facilitator too, if need be), to assess where their organization stands and what might need to be done to add confidence that everything is on, and will stay on, the right track.

    • The full text of Sarah Hall Ingram’s talk at Georgetown University is online here
    • A copy of The Principles Workbook can be downloaded for free (after registering) on this page along with further information about the principles and the project that developed them
    • Section VI of the Core Form 990 is explained in the instructions here

    All this attention to governance isn’t asking well-run organizations to do anything new. These principles and practices reflect values that are part of everyday life at the vast majority of America’s nonprofit organizations. What is being asked is that each organization take a careful look at itself and check whether policies and protections are in place to put commitment to the mission at the top of everyone’s to do list day after day. What could be more important than that?

    [This blog entry appeared on an older version of Idealist; any broken links are a result of having re-launched our site in Fall 2010.]

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