Nolo’s Fundraising Tips for Busy Nonprofits

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.

Until recently, many new nonprofits (those seeking tax-exempt status as publicly supported charities) started their life with a temporary, five-year approval. That's because they had no previous record of their operations, and needed time to prove that they were the real thing.

At the end of the five years, the IRS put them through a literal reality check, asking for proof that they had, in fact, received most of their support from public sources. Although 95% of nonprofits eventually passed this test and received their permanent ruling, it made for some nervousness as the five-year mark approached.

But no more. The IRS recently announced that, because it's so pleased with the amount of information that nonprofits must reveal year by year on their Form 990, it's doing away with both advance rulings and this five-year double check. Better yet, the new rule applies to nonprofits that have already formed but haven't yet reached the five-year mark. As one lawyer I know said, "This will be a relief to the parents on our preschool board."

For details, see the IRS announcement of September 8, 2008.

Don't miss Ilana DeBare's excellent article in the San Francisco Chronicle, "B corporation plan helps philanthropic firms." It profiles a new melding of for-profit and nonprofit status, in which a business explicitly adopts socially conscious goals -- in one case, donating all profits to charity -- and writes these goals into its founding legal documents. The originators of the concept call it a B corporation.

DeBare is careful to point out that, unlike C and S corporations, B corporations have no actual status under the tax code. And if you've researched the dividing lines between taxable and tax-exempt corporations, you know that the tax rules can get gnarly. But by banding together with a self-invented status, B corporations at least put the shareholders and would-be company buyers on notice that they're serious about serving other ends besides sheer profit.

I got a nice surprise the other day while filling out my federal tax return: That $10 apron I'd had to buy in order to walk dogs at my local Humane Society (modeled at right) was tax deductible! (And I was looking for every deduction I could get, given the number of unpleasant surprises in this year's return - but that's another story.)

It occurred to me, however, that while most nonprofit organizations do a good job of reminding contributors of money about the tax deductions they'll enjoy, very few say much about tax deductions their volunteers can take. And these volunteers might include everyone from board members to advisory council members to those who assist at special events or commit to regular activities.

True, we're probably not talking about big bucks, since there's no tax deduction for the very thing these volunteers contribute the most of -- their time. However, on the "every penny counts" theory, here's what the IRS will allow volunteers at nonprofits to add to their list of deductions:

• Car and transportation expenses. Volunteers might need to get back and forth from home to your office, or to meetings or other sites (such as a special event or to deliver food to a homebound AIDS patient). If driving, they can choose between deducting gas and oil, or mileage at the standard rate of 14 cents per mile. As Stephen Fishman advises in Lower Taxes in 7 Easy Steps, however, "Given the cost of gasoline today, the 14 cent per mile limit is absurdly low, so you'd be better off keeping track of your actual driving expenses." Volunteers can also add in parking fees and tolls. But they can't claim general car repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. The public transport-minded can, of course, deduct subway, bus, or taxi fare.


• Travel expenses. In cases where the volunteer is away from home performing services -- perhaps attending a convention or board meeting, taking underprivileged kids on a camping trip, or monitoring environmental destruction -- they can deduct their related expenses, such as airfare and other transportation, accommodations, and meals. However, there are important limitations on this one: The volunteer must gain no significant personal pleasure, recreation, or vacation in the travel. (Going on a fun trip and refusing to enjoy it probably won't make it deductible, either.) And the volunteer must really be working -- tagging along on an outing while performing nominal duties, or even no duties for significant parts of the trip, won't cut it.


• Other out-of-pocket expenses. For example, board members might deduct unreimbursed phone, postage, and copying charges associated with preparing for meetings. I can deduct the dog treats that I'm asked to provide in order to help train dogs while walking them.


• The aforementioned uniforms. This includes both their cost and their upkeep, so long as they're not suitable for everyday use (i.e. a T-shirt with a logo won't fly). Also, your organization must require the volunteers to wear the uniforms while performing services.

Some limitations apply to all deductions associated with volunteering. Volunteers must be itemizing their deductions to take advantage of this (so people who fill out a 1040EZ won't get any benefit). Volunteers cannot double-dip by claiming expenses for which the nonprofit already reimbursed them. The expenses must be directly related to the volunteers' work, and incurred only because of that work. They can't be personal, family, or living expenses (such as meals for children while they accompany the volunteer to a convention). And volunteers must keep reliable written records of the expenses.

Of course, in alerting volunteers to their potential tax deductions, you don't want to get into the business of giving personalized tax advice. For more information, suggest that they see IRS Publication 526, Charitable Contributions, or talk to a financial adviser. Tax-preparation software programs also provide guidance on this deduction.