December 2009 Archives

December 28, 2009

Stop the Obession With Percentage of Money Spent on Fundraising!

Here's an alarmist headline for you, from the Consumer Reports Money Blog: "What's a donor to do when a charity watchdog lowers its standards?"

The article expresses concern (if less outrage than the title would imply) over the BBB Wise Giving Alliance's recent announcement that, in considering whether to accredit a nonprofit, it will look at whether at least 55% of its expenses were used for charitable programs, as opposed to fundraising and administration. That's a reduction from the former 65% standard. Their reasoning was that the economy is making it difficult for nonprofits to fundraise. They also said that their standard for spending on fundraising will go to 45% of contributions, up from 35%.

Is this a "lowering of standards" that should make donors worry? I don't think so.

In fact, the very idea that there's something nefarious about spending money on administration and fundraising strikes me as inappropriate. What is fundraising, except an effort to raise community awareness and get people involved in a cause -- so that the cause can be supported an maintained? Why should we consider that activity divorced from actually doing the programmatic work? And even if the two are separate, do donors expect fundraisers to work for free? This might have been realistic in an era when board members had extra time to play with, but nowadays, everyone who isn't desperately looking for a job is working darned hard to keep the one they've got. Paid fundraisers are a must, and the good ones don't come cheap.

Sure, I get it that some organizations have let their top employees milk the funding while the programs suffered (though not as wealthy as corporate CEOs). But to punish every organization for the few who've gone too far seems like overkill. There's got to be a better way to judge which organizations are doing good work. 
December 17, 2009

Help Donors Use IRS Year-End Charitable Giving Opportunities

The holiday season is upon us and so is the year-end deadline for making charitable donations for 2009. Many people wait until the last minute to make their final contributions for the year -- which can be nervewracking for nonprofits as they compete for those last gifts.

One way to keep your relations with your donors solid at this time is to understand the bigger tax picture, and do your part to make sure they get all the tax benefits possible.

Whether it's cash, stocks, clothing, or other property, the IRS rules for deducting donations have changed over the last few years and gotten stricter. Here's what you should know about the current rules for charitable giving.

  • Clothing and household items. To be deductible, these items must be in "good used condition or better." The IRS doesn't say what constitutes "good used condition or better" but you can create guidelines for what your organization will or won't accept, which are considered helpful in determining what the IRS might view as acceptable. If the amount being claimed for a single item is over $500 and there is a qualified appraisal, then this standard does not apply. You'll also need to give the donor a receipt that includes your nonprofit's name, the date of the contribution, and a written description of the donated property (but not its value). Be sure you train your staff people about the importance of these receipts and how to fill them out.
  • Monetary donations. Under relatively new rules, donors must have a written record for all cash donations -- no matter how small. For donations under $250, donors can use a bank record (such as a cancelled check or credit card statement) or a written communication from the nonprofit. That means, for example, that if you hold an event and pass the hat, donors who make cash donations won't be able to claim a deduction. They'll appreciate it if you remind them of the rules, and recommend that they either use checks or see someone for a receipt. The receipt must show the name of your nonprofit and the date and amount of the contribution. For donations over $250, the long-standing requirement that the donor obtain a written acknowledgment from the nonprofit with amount and date of the contribution still applies.
  • Certain IRA contributions. Under an IRS rule scheduled to expire at the end of 2009, donors age 70 ½ or older can make tax-free transfers from their individual retirement accounts (IRAs) to certain eligible nonprofits of up to $100,000 per year. The transfer must be made directly by the IRA trustee to the nonprofit and the amount transferred counts in determining whether the IRA owner has met his or her required minimum distribution for the year. The donor does not get a deduction for the amount transferred, but it is not taxed as it would be under normal rules.

For more information on charitable deductions and IRS rules for nonprofits, see Every Nonprofit's Tax Guide: How to Keep Your Tax-Exempt Status and Avoid IRS Problems, by Stephen Fishman (Nolo) and IRS Offers Tips for Year-End Donations on the IRS website at http://www.irs.gov/newsroom/article/0,,id=164997,00.html.