In this guide, we’ll explain what a donor receipt is, why it matters both for donors and organizations, and how to create compliant donor receipts that also support good donor relations.

What is a donation receipt?

A donation receipt is a written acknowledgment issued by a nonprofit organization to confirm that a charitable contribution was received. It documents the details of the gift and serves as official proof for tax reporting and deduction purposes. 

The IRS requires official documentation for any single donation of $250 or more, but providing a receipt is considered best practice at every gift level. Acknowledging a gift appropriately reinforces transparency, accountability, and professionalism in charitable giving, while also providing a key stewardship opportunity.

Why receipts matter for charitable donations

Importance of gift receipts for donors

For nonprofits, gift acknowledgements can feel like yet another administrative task, but for donors, they are essential. 

Donation receipts allow donors to substantiate charitable contribution claims when preparing their tax returns. Prepared correctly, these documents confirm key details such as the donation amount, gift date, and whether goods and services were received in exchange for the gift.

Clear, timely acknowledgments reduce confusion during tax season and reinforce donor confidence in your organization. When nonprofits treat gift receipts as a priority, donors notice.

Importance of donation receipts for nonprofits

For organizations, gift acknowledgements support IRS compliance, reduce donor questions, and demonstrate operational maturity. Consistent acknowledgment of gifts signals respect for donors and their contributions. It also reinforces strong stewardship practices, helping move relationships beyond transactional giving and toward long-term engagement.

When to send a donation receipt for a charitable contribution

Donors must receive a contemporaneous written acknowledgment for any single charitable contribution of $250 or more in order to claim a tax deduction. While nonprofits are not legally required to issue receipts for gifts under $250, doing so is considered best practice.

To comply with IRS regulations, nonprofits should send a donation receipt as soon as possible after a gift is received, particularly for online donations, recurring donations, and other monetary gifts submitted through an online donation form. Receipts may be delivered by email or mail, depending on donor preference and gift type. Digital receipts are faster, easier to store, and more environmentally friendly.

As a courtesy to help donors prepare for tax season, many organizations also issue year end receipts summarizing all charitable donations made within a calendar year.

Information to include on a donation receipt

At a minimum, the donation details required on an IRS-compliant receipt should include:

• Organization name
• Donor name
• Donation date
• Amount of a cash donation or a description of a non-cash contribution (without listing a monetary value)
• A statement indicating whether goods or services were provided, aside from intangible religious benefits if applicable, in exchange for the contribution and their value

Including a statement confirming the organization’s 501(c)(3) status and the federal tax ID number is considered best practice and helps donors easily verify eligibility.

Disclosure for goods and services

If any goods or services were provided to the donor in exchange for a contribution—such as event tickets, membership benefits, or advertising—the acknowledgement must disclose this and include a good-faith estimate of their value.

If nothing was provided to the donor, the receipt should explicitly state this. Clear disclosure protects both the donor and the organization and prevents questions during tax filing.

Navigating hard and soft credits

As an official tax document, a donation receipt must always list the legal donor, whether that is an individual, foundation, or donor advised fund. This is true even if someone else facilitated or recommended the gift.

While the official receipt should be sent to the legal donor on file, it is best practice to also send a personalized thank-you letter to the individual or individuals who directed the gift. This allows nonprofits to maintain compliance while still acknowledging a donor’s support and practicing thoughtful donor stewardship.

What else is in the perfect thank-you letter?

Learn the key elements of an impactful thank you letter, including personalization, storytelling, and strategic messaging.

Get the cheat sheet

4 common gift acknowledgement types

Below are four common gift receipt types that your organization should be prepared to send.

Charitable donations

Cash donations include gifts made by check, credit card, ACH, online donation platforms, wire transfers, payroll deductions, and other monetary gifts. Receipts should clearly state the donation amount, date, and whether goods or services were provided.

Stock and property

Stock donations should be acknowledged with a description of the donated shares, without assigning a value. Non-cash gifts of $500 or more require donors to complete IRS Form 8283. The nonprofit may be required to sign the form, but it’s up to the donor to secure an appraisal as necessary.

In-kind gifts

In-kind gifts include items or services donated to the organization. Gift receipts should describe the donated item but must not assign a value. Determining the fair market value of the gift is the donor’s responsibility.

Nonprofits may only include a value estimate when goods or services are provided to the donor, not for goods donated to the organization.

Auctions

Many nonprofit events include a live or silent auction, inviting attendees to bid on donated items and services. The value of each purchased item must be reported on an auction receipt; only amounts paid in excess of items’ recorded values are considered tax-deductible cash donations.

Incorporating stewardship into your receipt process

While donation receipts are a legal necessity, they also present an opportunity to incorporate donor stewardship by reflecting gratitude and impact, both of which are essential for long-term donor engagement.

Many nonprofits pair or incorporate receipts with a personalized thank-you letter, particularly for major donors. At every level of giving, formatting simple receipts as letters and including a brief impact statement can set the stage for deeper engagement and future giving.

Donation receipt templates and best practices

Standardizing your organization’s gift receipts and processes is essential for consistency, efficiency, and compliance. Donation receipt templates should be reviewed annually to reflect IRS requirements and updated stewardship messaging.

Although the IRS does not require the signature of an authorized representative on donation receipts, including one is considered best practice. It reinforces professionalism, adds a personal touch to your acknowledgements, and is easy to achieve when your acknowledgements are formatted as letters. 

Receipt template for a cash donation

For monetary charitable donations, below is a simple letter-based gift receipt template.

Dear [Donor],

Thank you for your generous gift to [Organization Name/Campaign]. Your support is [describe the impact].

Below is a summary of your donation. Please retain this letter for your records.

Organization:

Campaign:

Donor Name:

Amount:

Donation Interval:

Gift Date:

Receipt Number:

Payment Method:

[Statement of gratitude, tying back into your organization’s mission and impact.]

With gratitude,

[Signature]

[Representative Name]

[Representative Title]

[Organization Name] is a registered 501(c)(3) nonprofit organization (Federal Tax ID #00-0000000). Your donation is tax-deductible to the extent allowable by law. No goods or services were provided by [Organization Name] in exchange for this contribution.

12/20/2025

Dear Mr. Nelson,

Thank you for your generous gift to Second Chance Sanctuary’s Capital Campaign. Your support is helping us lay the foundation for the future of animal rescue in Kansas City, and we are deeply grateful for your commitment to our mission.

Below is a summary of your donation. Please retain this letter for your records.

Organization: Second Chance Sanctuary

Campaign: Capital Campaign

Donor Name: Roger Nelson

Amount: $2,500

Donation Type: Cash

Donation Interval: One-Time

Gift Date: 12/17/2025

Receipt Number: 10003258

Payment Method: Credit Card

Because of supporters like you, more than 1.3 million homeless pets receive a second chance each year. Your gift directly strengthens our ability to provide safe shelter, critical medical care, and compassionate support for animals who have been abused, abandoned, or neglected.

As we work toward building a new facility, your generosity empowers us to serve more animals, more effectively, for years to come.

With gratitude,

Kitty Catterson

Executive Director

Second Chance Sanctuary

Second Chance Sanctuary is a registered 501(c)(3) nonprofit organization (Federal Tax ID #00-0000000). Your donation is tax deductible to the extent allowable by law. No goods or services were provided by Second Chance Sanctuary in exchange for this contribution.

Receipt template for a non-cash charitable contribution

Written acknowledgement of a non-cash contribution should follow many of the same best practices as the cash charitable gift receipt above. However, no value should be listed on the receipt. 

Instead, a description of the gift should clearly indicate what was given, such as:

• 10 stock shares: Apple, Inc (AAPL)
• A full-page, black-and-white advertisement in the Kansas City Star, to run on Sunday, December 21 and Sunday, December 28, 2025
• 1994 Buick Roadmaster:
  • Odometer Reading: 217,932 miles
  • VIN #2B3KA53HX6H199567
  • License: CAT 2727 (MO)

If you commonly receive a particular type of gift, it can be helpful to develop a template specifically to capture the related information. Below is a general template example to get you started.

Dear [Donor],

Thank you for your generous [in-kind, stock, automobile] gift to [Organization Name/Campaign]. Your support is [describe the impact].

Below is a summary of your donation. Please retain this letter for your records.

Organization:

Campaign:

Donor Name:

Description of Gift:

Gift Date:

Receipt Number:

[Statement of gratitude, tying back into your organization’s mission and impact.]

With gratitude,

[Signature]

[Representative Name]

[Representative Title]

[Organization Name] is a registered 501(c)(3) nonprofit organization (Federal Tax ID #00-0000000). Your donation is tax-deductible to the extent allowable by law. No goods or services were provided by [Organization Name] in exchange for this contribution.

Receipt template for a silent auction purchase

Unlike a cash donation or non-cash contribution, a silent auction purchase is transactional by nature. The template for these written records is typically more practical, easy to fill out during or immediately after an event, and they should always include the fair market value of the item purchased.

Date:

Receipt Number:

Event Information

Organization Name:

Event Name:

Address:

Bidder Information

Name: 

Address:

Phone:

Payment Information

Payment Method: ⃞ Cash ⃞ Credit card ⃞ Check ⃞ Other   

Payment Date:

Received By: [Organizational Representative Name]

Signature:

[Organization Name] is a registered 501(c)(3) nonprofit organization (Federal Tax ID #00-0000000). Any amount paid in excess of the fair market value for goods received is tax-deductible to the extent allowable by law.

Using technology to create and send donation receipts effectively

Modern fundraising technology makes it easier than ever to acknowledge charitable donations quickly, accurately, and effectively. The best systems balance automation and personalization, ensuring compliance without losing a human touch.

Some of the best practices for using technology to send gift receipts include:

• Automate wherever possible, automatically sending receipts with online donation software 
• Track all donations, donor information, and contact preferences in a robust CRM software 
• Use advanced AI fundraising tools to write thoughtful, custom donor receipt letters

When done right, donation receipts support compliance while also working to build trust, strengthen relationships, and support sustainable fundraising.

The post A guide to donation receipts appeared first on Kindsight.

It’s easy to get excited about the possibilities of grant funding, especially when you’ve just been awarded a grant. It’s just as important, however, to remember that grantmaking organizations have priorities and goals of their own, and they typically want to ensure their funds are used effectively. Most grants come with stipulations regarding how the funds can and cannot be used, helping to ensure good organizational outcomes and alignment with funder values.

Grant management is the process of monitoring, tracking, and reporting on grant funds throughout a grant’s lifecycle to ensure efficiency, impact, and compliance with grantmaker regulations. Whether you’re a nonprofit organization, academic institution, or government agency, implementing best practices in grant management is essential to getting—and keeping—these important funds as part of your overall fundraising strategy.

In this guide, we introduce grant management best practices to help you manage your funding well and set your organization up for future success.

The benefits of an effective grant management process

When you demonstrate responsible and impactful use of grant funding, you signal to funders that you are worthy of their philanthropic investment. This credibility extends well beyond the life of the grant and often opens the door to additional funding opportunities. Good grant management leads to new, larger, and more transformational grants in the future.

In contrast, poor grant management can be costly. Mismanagement of funds can result in financial audits, damage to the organization’s reputation, and loss of future funding opportunities. A funder can even revoke previously-awarded grant funding, requiring the organization to pay back any money already received. That’s not a risk most organizations can afford to take.

Understanding grant management best practices

A comprehensive grant management plan is the foundation for successful grant execution. Ideally, this plan should be considered and developed alongside your grant application. Some funders even require a grant management plan to be included in those materials.

Key elements of a grant management plan

A strong grant management plan includes:

• Clear project goals and objectives
• Compliance and risk management
• Financial tracking
• Evaluation and reporting
• Communications

Altogether, these five elements serve as both a roadmap for implementation and a framework for accountability. Grant management best practices include setting clear expectations for how and when your grant requirements will be fulfilled, and they’re worth exploring in more detail.

1. Clearly define your project goals and objectives

A well-defined vision for success is the first step for both securing a grant and managing it effectively. Setting SMART (Specific, Measurable, Achievable, Realistic, and Time-bound) goals as part of your grant proposals gives your project a clear focus with measurable outcomes.

All staff, board, and even some volunteers who are involved in the grant or the project it funds should be well-versed in your project goals, understanding exactly what and how you aim to accomplish. 

Clearly established and well-communicated objectives make it easier for all project leaders to make informed decisions regarding fund allocation. They also help to ensure that your project is aligned with the grantor’s priorities from the start, minimizing questions about fund allocation and management throughout the lifecycle of the grant. 

2. Ensure compliance with grant terms

Rigorous compliance with grant terms is perhaps the most important element of any grant management plan.

Grantmaking organizations typically outline specific stipulations and requirements as a condition of their funding. These terms should be reviewed thoroughly before accepting a grant to ensure that your organization can comply. You should also revisit the grantmaker’s requirements periodically throughout the life of the grant.

All organizational grant recipients must understand allowable and unallowable expenses—especially for government-funded grants—as well as reporting and communication requirements.

While many grantmakers have similar guidelines, the specifics on timing and format can vary. For an organization, some of those details may not seem very important. However, they should not be overlooked, as funders frequently make future funding decisions based on how well recipient organizations follow their guidelines when submitting grant proposals and throughout the grant funding cycle. Failure to comply with grant guidelines can lead to penalties, damage to the funder relationship or your organization’s reputation, or even loss of funding.

Learn how to craft a compelling grant proposal.

This comprehensive guide outlines the key components of the grant writing process and offers practical tips to help you create persuasive proposals that resonate with funders.

Get the cheat sheet

Tips to maintain compliance throughout the life of the grant

• Regularly review grant agreements to make sure you’re on track and on time to meet your obligations.
• Align spending with grant stipulations, reporting deadlines, and budget constraints.
• Assign a compliance officer or team member to oversee the organization’s adherence to all grant terms.
• Identify risks to compliance requirements and create a plan for mitigating those risks.

3. Maintain accurate financial reports and records

The budget that you submit as part of your grant proposals should outline any expected project expenses such as personnel, equipment, supplies, and overhead costs. After you have been awarded a grant, you will need to track spending for each of these expenses as well as any unexpected costs.

Transparency is an important part of the grant process. By implementing meticulous financial records and tracking systems, you can account for every dollar, and you’ll be ready if and when a funder requests that information. This helps to prevent mismanagement of grant funds, establishes your financial track record, fulfills grant requirements, and builds trust with funders.

If you receive funding directly, your financial tracking should include whether grant money is utilized for each project expense or if the funding comes from another source. You will also need to track the total amount of grant funding, monitoring the spend down as the funds are allocated and depleted.

If your grant funds are rolled out through a reimbursement system, this tracking is just as critical. Consistent tracking and documentation is required to ensure that you receive all expected funds.

Best practices for financial tracking

• Use grant-specific accounting codes to track expenditures.
• Segregate funds to prevent misallocation.
• Conduct regular financial audits to identify discrepancies and make corrections as necessary to maintain financial integrity.

4. Make evaluation part of your grant management process

For many grantmaking organizations, community impact is a big motivator. They want to know that their philanthropic investments make a difference—and not just in the receiving organizations, but in the communities you serve.

Periodic reporting on financial and programmatic progress informs grantmakers of how your project is doing and how their funding has helped. Most grant requirements call for regular reporting throughout the project and at the end of the grant lifecycle as well. 

Internally, ongoing performance tracking helps to ensure that your funded projects remain on schedule and within budget. Regular evaluations can also identify challenges early and allow for timely course corrections.

When it comes to evaluation, grant management best practices include internal and grantor reports that track and reflect clear, measurable progress outcomes that align with your project goals and objectives. Your funder may provide reporting deadlines, or you may set the schedule yourself. If you experience setbacks, address them directly, and note the plan for their resolution.

Tips for Your Evaluation and Reporting Strategies

• Develop a data collection plan for financial and impact metrics.
• Conduct mid-project assessments to track progress and address challenges.
• Perform a final evaluation to document lessons learned and inform future grant applications.

5. Foster transparent communication with stakeholders

While the document-heavy process of grantseeking and grant management can seem impersonal at times, human decision-makers and interests are present on both sides of the equation. The best funders for your organization are those with whom you’ve built a relationship of trust and shared philanthropic interests.

Some funders like only periodic updates on your financial and programmatic progress, while others may want deeper involvement, from formal reports to site visits and engagement with other stakeholders. Understanding your grantor’s communication preferences and responding accordingly allows you to build stronger organizational relationships and, in turn, increased funding opportunities.

At times, you may also need to have more difficult conversations. If the project being funded is facing insurmountable challenges or unexpectedly shifting directions, a frank conversation with the grantor is in order to decide how to proceed with funding. Some grantors will allow a grant extension or modification to accommodate those changes, while others may take a different approach and close the grant early.

Grant management communications best practices

• Provide consistent updates on project progress, challenges, and successes.
• Engage stakeholders through meetings, reports, and impact stories to showcase the grant’s value.
• Schedule regular reports and check-ins to maintain transparency and accountability.

How technology aids in efficient grant management

While some organizations may effectively manage a grant with a couple of spreadsheets and a physical filing system, most organizations—and most grants—benefit from a more sophisticated approach. Investing in grant management software can help to streamline documentation, automate deadline reminders, improve oversight and accountability, and facilitate seamless operations. This is especially important if your organization is managing multiple grants at one time.

Common applications useful for grant management include grant management software, constituent relationship management (CRM) software, accounting software, and program or project management trackers. These tools, when utilized well, can automate tracking and reporting functionalities, increase the accuracy of your financial management, and improve the efficiency of your grant management process.

For more information on how technology can help you in the grant proposal process, watch our webinar, Beyond Uncertainty: New Paths to Fundraising and Grant Success with Cherian Koshy, VP of Market Insights at Kindsight, and Lauren Steiner, CEO of Grants Plus.

Invest in a skilled grant management team

Managing grant funding is not always easy, but when you consider the potential impact of the funding made available through those grants, the effort is worthwhile. To make the process easier, invest in the people and skills necessary to manage your grants well.

A knowledgeable team enhances grant execution and ensures that funding is used strategically, but effective grant management can’t be contained to one position or department. It requires buy-in from across the organization, including leadership, fundraising, program management, finance team, accounting, and human resources.

Because your grant management process spans the whole organization, clear roles and responsibilities are essential. Specific individuals and roles should be assigned to oversee program execution, finance, compliance, and reporting. Regular, ongoing training helps to ensure that everyone has the knowledge and skills necessary to do their part, and cross-functional collaboration is key to efficiency and effectiveness.

Additional grant management best practices and tips

Here are two important final tips to help you implement an effective nonprofit grant management process at your organization.

Start with small grants to build your grant management expertise

If you’re new to grant writing, funding, and management, the grant process can be overwhelming. For some non-profit organizations, it may be helpful to start with small grants from local grantmaking organizations. Working with a smaller organization can allow you to develop and practice your grant fundraising and management skills while building your capacity to manage larger funds. (And if you need support with your writing, check out our Grant Writer AI tool!)

Leverage your current grants for future funding opportunities

With every successful grant, your organization builds its grant-seeking résumé. Organizations that demonstrate accountability and effectiveness are more likely to secure future funding opportunities. As you manage your existing grants, compile comprehensive records detailing your expenditures and impact—-not just for current funders, but for future grantors as well. Document all financial transactions and your processes as well.

Conclusion

Implementing grant management best practices requires strategic planning, strict compliance, and continuous monitoring.

While managing a grant is no small task, implementing these best practices is essential. With effective grant management, organizations can maximize the impact of their grants, maintain strong relationships with funders, and, most importantly, secure sustainable funding for future initiatives to keep their mission going long into the future.

The post Mastering grant management: Best practices for success appeared first on Kindsight.

It’s not just about high salaries. It’s about building a full wealth picture that includes lots of assets. Because while some people can give big gifts from disposable income, your really big gifts are going to come at least partially from your prospect’s assets.

In the finance industry, especially alternative investment funds – such as hedge funds, private equity funds, and venture capital funds – it can usher in billionaire status, as it did for 93 people on the Forbes Real-Time Billionaires List.

Alternative investment funds are like mutual funds for the super-rich. The minimum investment amount is often quite high, such as $1M+, and the investor money is pooled into one fund, which then uses that pot of money to make high risk investments that are chasing high rates of return.

How high is the rate of return? Consider the interest rate on a savings account. These days, you might find a bank that will offer you 4%, but the past few years have seen savings account interest rates at below 1%. It’s no wonder that those with excess money are patient enough to chase returns of 10%, 30%, or more!

I say patient, because alternative investment fund investors might have their money tied up for 3, 5, or even up to 10 years. Fund owners typically have some of their own money patiently invested in the fund, too.

An alternative investment fund owner is earning money in these ways:

• Asset Management Fee: The firm typically charges around 1% for all assets under management (AUM). These fees pay salaries and other operating expenses.
• Performance Fee: Typically around 15%, this is how much the firm receives on the investment return and is also called “carried interest.” If $100M AUM earns 30% ($100 x .30 = $30M), then the performance fee is 15% of $30M, or $4.5M.
• Firm Investment: It’s pretty common that part of the total AUM includes some of the firm’s own money. In that case, the firm would receive the full return on those invested dollars, not a performance fee. In addition, the firm would not charge itself an asset management fee on its own investment.
• Reduced Firm Expenses: The limited partnership agreement that governs the fund outlines what expenses the fund will pay the firm. Also, depending upon the type of investment strategies, other fees and obligations — such as loans — might be the responsibility of the company the fund invests in and not the firm. While not something we researchers might calculate, lowered expenses impact how much money goes into the firm’s pockets.

How can you identify prospects in alternative investment firms?

Maybe your prospect didn’t make the Forbes or Bloomberg billionaire lists, but that doesn’t necessarily mean the person isn’t a great prospect. Wealth at this level can be very private. And even if your prospect is “only” in the $100M to $1B estimated net worth category – that’s still amazing, right?

Your best bet is to make it a practice to recognize, understand, and present occupation well – including the financial field. Thankfully, there are plenty of tools and resources to help you do that.

Tools like iwave often provide the first clue you are researching someone with wealth earned in finance.

• Many times, it is ZoomInfo or Dun and Bradstreet that provides the first clue about the name of your prospect’s employer. From there you can quickly find the company website, search Google, or find a LinkedIn profile.
• Warren Buffet might live modestly, but many with wealth earned from alternative investment careers pop with high value real estate and large philanthropic giving, just like other high net worth individuals.

You might not know if your prospect is an investor in alternative investment funds, but the owners of the firms operating the funds are publicly named in US Securities and Exchange Commission (SEC) filings. Even if your fund owner is outside of the US, it might be worth checking the SEC filings because there are regulations about US investors that can trigger US filing requirements.

• Search for an individual or firm on the Investment Adviser Public Disclosure (IAPD) site: https://adviserinfo.sec.gov
• Find the Form ADV and look at Schedules A and B for ownership.
• Many firms operate several investment funds. Form ADV, Section 7.B.(1) Private Fund Reporting, provides you with details on each fund.
• If the person or firm is required to file a Brochure, you can find details about AUM and the fee structure.

Be worried about underestimating wealth!

It can feel uncomfortable to speculate about wealth, especially when you can’t calculate specific, hard asset numbers to back you up, but it is worth it. Josh Kushner (brother to Jared Kushner, whose father-in-law is Donald Trump) checks in on the Forbes Real-Time Billionaires List at $3.6B at age 37 years old!

You wouldn’t want to be the one who under-estimated him early on, even though he was in the venture capital space, would you?

And it is also true that even when you find out your prospect is a high earning owner, you still need the person to have affinity and propensity to give. Thankfully, iwave can give you affinity and propensity ratings, and of course you can search for giving, family foundations, and nonprofit board positions on iwave, too.

I know you have great major gift prospects in your donor database, you just need to get curious and follow the occupational clues!

Additional Resources for Learning

Wall Street Mojo is a free educational source, although not focused on our purposes of rating for capacity.
Prospect Research Institute offers Master Classes on the finance field that walk you through the calculations.
Understanding the Financial World for Prospect Researchers with Jon Jeffery is a 90 min on-demand training from PyroTalks CIC.

The post Venture Capital, Private Equity, and Hedge Funds – Don’t hesitate to rate! appeared first on Kindsight.

This post includes personal budgeting metaphors but there are not many good analogies between individuals and nonprofits. As with all things, please make sure that you are connecting any advice to the conditions and circumstances of your nonprofit and seek out qualified, trusted counsel to assist.

What is a Budget?

We all intuitively know what a budget is but how we think about budgets impacts our organization’s inner workings significantly. Creating a budget means that you begin with identifying your sources of income. For you, personally, this means how much you expect to make this year. If, after taxes, your take home salary is $3,000 a month, that means two things:

a. You can’t spend more than $3,000 a month and,
b. You can’t spend more than $36,000 a year

With your month and year limit, you can now get to work giving each dollar a job. For individuals, there are various expenses that go into creating their own budget. Items like housing are costs that need to be paid in the same amount every month. For nonprofits, items like rent and staffing are fixed expenses. Then for individuals there are variable costs such as food. These are expenses that can be minimized but not eliminated. Finally, there are discretionary costs. These are costs that are value-based. For example, individuals might choose to give to charity, go on vacation, or contribute to retirement.

Many organizations overlook conducting an assessment that identifies whether your resource allocation matches your values. For example, our family values philanthropy but we quickly noticed that our charitable dollars were at the bottom of our list, not at the top. This meant that everything from Netflix to tacos decreased our charitable giving even though that wasn’t our intention.

What is Zero-Based-Budgeting and Is It Right for Our Nonprofit?

How many times have we heard, ‘that’s not in the budget’ or ‘we don’t have the budget for it.’ When I hear this from boards I counsel, my immediate question is ‘why?’ If this is something we should be resourcing, then we need to reconsider the budgeting process. For nonprofits, it might be investment in new staff, or new systems, or help jump starting a particular program or activity. Unfortunately, many times resources don’t align with the needs. Likewise, any organization that has, thus far, weathered the pandemic and economic conditions and shifted their practices, should consider a review of their budget process.

There’s a philosophy in budgeting called Zero-Based Budgeting and while this approach would not be recommended for every nonprofit every year, it is an excellent exercise on a periodic basis for some.

The nonprofit begins with an exercise in goal setting and values identification. It then builds a budget from scratch with no requirement to allocate resources from a previous year’s budget. As you deliberate over expense items, you are required to justify the needs and costs as well as alignment to your values. If there’s disagreement on the need, the allocation of the resource, or on values, it’s placed lower on the priority list until everything is accounted for. Then whatever meets some criteria gets what’s left over, while those that don’t match up on need or value, get deferred to a future when they can be justified.

In the end, you should have a budget that accurately reflects your needs and values and can be updated for several years without having to revert to ZBB each year.

Budget Warning Signs

Not every organization is going to go through the process of ZBB or some other exercise on budgeting. That’s why there are three warning signs that any board members or staff should be on the lookout for in any budget:

First, does the budget present expenses greater than revenues? Put another way, are you spending more than you are making? The obvious concern here is that there is a high likelihood of running out of cash, depending on a savings account or line of credit, or expecting that your donors will foot the bill for a misallocation of resources. While there are exceptions to any rule, this is generally the first clue that an organization has a problem. The simple solution to this problem is to write a balanced budget where expenses equal revenues and present a budget amendment if additional revenues occur.

Remember, your budget is a roadmap for how your resources will be allocated. They prevent you from spending more than you had planned to ensure that resources are available to do all that you planned for each year. As everyone knows, you can go out to eat and spend your entire monthly budget on food in one night. By setting up a budget you are constraining your future organizational self from a financial mistake.

Second, does the budget predict revenue increase against fixed expenses year over year? Put another way, are you looking to get more money by spending less? This is a red flag because expenses always increase. It’s more expensive to print, mail, cater an event, or conduct programs each year. Any budget should reflect this fact and revenues increase in proportion to the expense budget.

Many nonprofits don’t calculate the cost to raise a dollar. This is a mistake and causes considerable heartburn come budget season.

Here’s a simple formula:

Fundraising expenses
___________________ = cost to raise a dollar

Fundraising revenues

For example, $2,000 is spent on a fundraising event where $6,000 is raised, the cost to raise a dollar is $2,000/$6,000 = .33 or 33 cents. While there are benchmarks about standard costs to raise various donor dollars, my recommendation is to begin by making sure your calculation is correct. Many fail to allocate expenses by not including staff time and other costs into the top number. For example, an event that has $2,000 in direct event related costs might take a month of planning (160 hours of staff and volunteer time) to execute. At even $15 an hour, the expense line more than doubles to $4,400 and the cost to raise a dollar is now 73 cents, well above nearly every industry average.

Boards and staff can quickly identify a faulty budget when they see that expenses don’t increase in correlation to anticipated revenue that is some function of the cost to raise a dollar. If, for example, last year’s event truly had $2,000 in expenses, then a revenue goal of $10,000 would require at least $3,300 in expenses. The same is true of direct mail or major gifts where either hard costs or staff time would need to increase in relation to the overall revenue goal.

Finally, and perhaps most importantly, does the budget require gap fundraising? Put another way, has the budget determined expenses first and donor dollars will need to fill in the gap? Run – do not walk – away from such a budget. An expense side budget fundamentally misunderstands how nonprofits function and how fundraising occurs. Nonprofit budgets cannot be made whole by wishful thinking, fairy dust, and unicorn wings. Nor should any fundraiser or staff be made to think that they have failed because they were required to do the unimaginable.

Inherent in any fundraising data set are the keys to understanding what goal amount is likely and what is a stretch amount. By looking at factors such as:

• Average gift size
• Donor retention rate
• Donor acquisition rate
• Cost to raise a dollar
• Available fundraising budget

Any nonprofit can identify what their next fiscal year fundraising goal should be. For example, if you have 100 donors at a $100 average gift size and a retention rate of 60% and a reacquisition and acquisition rate of 10% and a cost to raise a dollar of 40 cents and an increased budget of $1000, you can be relatively sure of the following:

• Next year’s revenue from previous donors will be $6,000 vs $10,000
• You’ll get $1,000 in recaptured donors and $1,000 in new donors

Your previous year budget will get you about $8,000 in donor revenue.

• To get back to even, you’ll need to spend $800 of your increased budget
• Your remaining $200 of budget will get you to an extra $800

Total: $10,800

Could you set your next fiscal year goal at $11,000 (a 10% increase)? Yes, but this is a deviation higher than what the data indicates. At those small numbers, most boards would be comfortable passing that budget. At $100,000 or $1M or more, my personal comfortability wanes. While I’ve focused on fundraising in this specific example, it can be applied to programming or earned revenue with modification.

Budgeting need not feel like it is out of reach for any nonprofit staff member. With the right tools, anyone can build a budget or use a common sense approach to identifying problems with a budget. As you get more familiar with budgets, you’ll be able to identify additional sources of tension.

The post Considerations in Budgeting for Nonprofits appeared first on Kindsight.

Every nonprofit is unique. While your specific fund accounts will be distinct to your organization, there are some helpful fund accounting best practices that any organization should follow.

With iWave, you can make the right asks with the right donors, so you can make the most of your efforts. Below, learn more about the importance of fund accounting and how to maintain accurate records, as well as how our platform can guide you forward!

What is Fund Accounting?

To break down fund accounting, let’s first look at how nonprofits run compared to their for-profit counterparts. Though it may seem obvious, for-profit businesses focus on profit when organizing their finances. Nonprofits, on the other hand, are about giving. They’re using funds to charitably power community improvements.

Since nonprofits rely on donations, grant requests, and other means to operate, they need a way to prove they’re acting responsibly as they carry out their mission. To ensure accountability, all these different fundraising streams must be accurately recorded.

Fund accounting is the method used to not only keep a record of all incoming funds, but to show that they are consistently being used legally and appropriately.

Unrestricted and Restricted Funds

The process of fund accounting helps nonprofits oversee the restrictions of all types of revenue to ensure every contribution is used as it was intended. Each fund account will house the specific fund’s assets, balances, revenue, expenses, and any liabilities related to the fund. For further clarity, funds are divided into unrestricted and restricted categories.

Just like it sounds, an unrestricted fund doesn’t have any restrictions built into it. This means it can be used at the discretion of the nonprofit. Alternatively, a fund can be a restricted gift, which is designated into two types, including:

• Temporarily Restricted Fund: Must be used for a particular purpose, program, or campaign, or must be used during a set timeframe. The clearest example of this type of fund is for a capital campaign, such as for the completion of a building.
• Permanently Restricted Fund: Though they never expire, these types of gifts or assets are required to remain unchanged for a period of time or indefinitely. Only income earned from it can be used. An example of this is a fund that is part of an endowment.

In addition to these three main categories or fund types, a nonprofit can further organize its finances by creating subcategories for specific funds. Often used with unrestricted funds, subcategories designate a portion of a larger fund to be used for something more defined.

Subcategories for Unrestricted Funds

By separating unrestricted funds into subcategories, you can closely track and efficiently distribute your nonprofit’s revenue to meet a variety of needs across your organization. One way to do this is by making Board Designated Funds.

For example, the Board Designated Funds could channel resources into capital assets, such as for purchasing supplies, fixing buildings, or meeting other physical necessities to run your programs. Creating additional subcategories for unrestricted funds like this can make your nonprofit even more transparent by clearly demonstrating how every penny is spent.

Fund Accounting Overview

Keeping separate fund accounts increases transparency, ensures governmental compliance, and helps nonprofits demonstrate their integrity to the public.

With restrictions in place, things can get complicated quickly. Proper fund accounting ensures everything remains in check and nothing is misused. Since each fund acts like its own entity, each account will maintain a record of the specific fund’s:

• Revenue
• Expenses
• Calculations
• Balance sheet

The easiest way to keep track of your nonprofit’s distinct funds is by using a fund accounting system. Most fund accounting systems will group all your categories of net assets into one of the three designations including: unrestricted, temporarily restricted, and permanently restricted. Nonprofits can then use these categories to meet GAAP and FASB 116/117 regulations.

When it comes to tax season, having everything sorted ahead of time will make reporting your nonprofit’s breakdown of net assets on IRS form 990 much easier and more streamlined.

Sorting Funds with Program Codes

A key aspect to note about fund accounting is that it isn’t necessary to create completely separate funds or bank accounts for every program your nonprofit initiates or grant it receives. Instead, to save time and energy, you can simply track the activity within funds.

Rather than establishing many independent funds, you can track and organize your nonprofit’s many projects using your chosen fund accounting system by designating program codes within the broader fund categories you’ve assigned. The three main categories of program codes or functional areas include: program services, fundraising, and management/general.

The Donation Rulebook

Often times, the restrictions of funds from grants are clearly and explicitly defined. However, things can get a bit muddled when requesting donations from individuals. In some cases, a donor will include the restrictions for their gift in writing, such as through a letter, an agreement, or in their will.

Keep Your Clauses Clear

When requesting donations from individuals, the specifications for the desired donation must be clearly stated. If your nonprofit is requesting unrestricted fund donations from prospects through an email or physical letter, be sure to include a clause identifying the type of fund on the donation form or within the official gift acknowledgement.

However, if your organization is fundraising for a capital campaign, scholarship fund, or other type of restricted fund, take care to use these funds only for their planned purposes. Donors who make restricted gifts may feel passionately about contributing to a specific aspect of your organization, and it is crucial to honor their intention.

Noncompliance with a specific fund can result in legal issues, a removal of the fund, and could sully your nonprofit’s credibility for years to come.

A simple way to mitigate any confusion is to let individual donors choose the parameters of their gift when they make a contribution by offering several possible options. Doing so builds trusts with donors of all kinds, which in turn may increase the likelihood of receiving recurring or future donations.

Fund Accounting and Nonprofit Fundraising

Once you choose and set up a fund accounting system for your nonprofit, you’ll need to ensure there are plenty of funds coming in. Then, with reliable revenue streams and a well-organized fund accounting system in place, your nonprofit will be well on its way to furthering its mission and its impact.

iWave offers fully customizable fundraising solutions that can amplify your nonprofit’s financial success. Along with that, we provide personalized onboarding and unlimited support, so you’ll always have help when you need it. Contact us to schedule your free demo or to get an assessment today!

The post Fund Accounting Fundamentals appeared first on Kindsight.

This annual report is vital to the health of your nonprofit because it lets current supporters know the impact of their gifts and encourages potential donors to join your cause. A successful report will set you up for success over the next year, so you want to be very thoughtful when creating this document.

Unsure of where to start? iWave is here to help you craft this vital report and use it to your advantage.

What Is the Difference Between an Annual Report and Annual Filings?

Annual filings, also known as an Annual Information Return or Form 990, is an official financial report that nonprofits with 501(c)(3) status are required to file with the Internal Revenue Service (IRS) each year. It is a means of oversight and ensures accountability.

If a nonprofit fails to complete their annual filings, they could be penalized or lose their tax-exempt status. This mandatory form is different from an annual report, which is a voluntary document.

An annual report is a tool that a nonprofit can choose to create to reflect, record, and inform the public each year. Though voluntary, electing to put together an annual report can serve many aims and help your nonprofit follow through with its mission, while garnering more support.

Establish a Plan for Your Annual Report

As with any fundraising undertaking, the first step in drafting an annual report is to craft a firm plan. Bring together different departments in your nonprofit to ensure all the necessary information is being included and that everyone is on the same page.

To start, you’ll need to develop a clear purpose for the annual report, including a solid determination on who your target audience should be. Typically, your audience should be current supporters as well as any prospective donors, sponsors, and foundations.

The main goal of your report is to encourage future support; however, you may also want to establish a few secondary objectives. For example, do you want to attract more local attention or start a new project in the next year? You can get the ball rolling by setting up future objectives in your annual report.

With these goals in mind, some of the other strategies you may want to implement include:

• Delegating responsibilities to the appropriate team members.
• Interviewing supporters for feedback.
• Compiling financial statements and statistics.
• Collecting key data from fundraising campaigns.

Be strategic and selective in which programs and campaigns you’re highlighting to further your nonprofit’s goals. If you’ve been running multiple local campaigns that have been successful for years but want to expand your cross-country ventures, spend more time discussing successful non-local strategies.

Center your accomplishments around three to five core themes and you’ll keep your report and your audience focused on the key objective!

Meet the Requirements

In order to create the most successful annual report possible, try reading the reports of other likeminded organizations as well (if you can access them). In doing so, you can identify valuable common trends across similar nonprofits. While you want to be creative with your report to engage your audience, you also need to include the vital information all nonprofits report on, including:

5. A clear mission statement: Whittle down your key values and main purpose and you’ll have your nonprofit’s mission statement. This is probably something you already have on your website, but maybe it needs a bit of refreshing. Reevaluate your mission before releasing your annual report to ensure everyone is well aware of your current goals.
5. A list of projects: It’s important that your supporters know how you have been enacting change. Make sure to mention any new programs and then update on any existing program changes or major growth. These accomplishments should mainly encompass the past year since this document will be released annually.
5. A financial statement: At the end of the day, donors want to know how their money is being used. Be open and honest about any expenses to establish trust with your audience. It will also show how responsive your team is and how effective you have been with your programs.
5. A log of major contributions: Acknowledge the myriad ways in which success was achieved in this past year. List your biggest supporters and thank them for their contributions. This helps encourage continual support and can even inspire future donors as well. You can also dedicate part of your annual report to pointing out which campaigns or specific donors contributed to each project you choose to highlight from the year.

Your accomplishments are bound to change every year, but your underlying report structure should stay the same. No matter how your nonprofit has evolved over the last 12 months, such changes should stand upon the same firm foundation.

Focus on Donors

Your annual report is the perfect opportunity to provide your valued donors with the recognition they deserve! Doing so also creates more opportunity for prospective donors to connect with your nonprofit, which increases the likelihood of them making a contribution.

Instead of centering your report solely around the organization’s achievements, give your donors an equal share of the praise. Not only should the language of your report address your donors directly, it should also emphasize how your successes were accomplished as a direct result of your supporters.

Record statements from volunteers and donors, display images of your volunteers in action, and present your list of major donors. As you talk about the various projects that donors have supported, you can pepper in some knowledge about all the good they have done. Let your audience know how gifts were received and who specifically made the largest impacts.

To take your focus on donors a few steps further, consider including one or more deep dive interviews with some of your most impactful donors and dedicated volunteers. Though concrete statistics are a vital part of any annual report, they will be much more effective if they are backed up by compelling storytelling from the heart.

By emphasizing how vital your community and supporters are, you’re making your donors feel important—potentially leading to continued or annual support. Even the most altruistic of donors appreciate a bit of recognition from time to time!

Use Visuals to Engage Your Audience

When you hear the word “report,” you may be transported back to your school days. In other words, you’re thinking dry, academic writing and walls of text.

When it comes to your nonprofit’s annual report, however, you’re free to get as creative as you want—in fact, color and creativity is a must. Annual reports typically span 10 pages, and you want to maintain the reader’s attention throughout. Nothing grabs attention or expresses personality like vibrant visuals.

These visuals are useful in the following areas:

• In the middle of large blocks of text: Visuals break up walls of text and draw the eye in, keeping readers in the moment.
• When talking about complex data: Some data can be hard to understand, but when compiled into a graph or infographic, it becomes easier to grasp.
• To convey your cause: Match a volunteer quote to a picture of them volunteering to help put readers in their shoes.

If your report is being presented on the web, you can even experiment with interactive elements such as links and videos, which we will explore in greater depth when we discuss hard and digital copies for your annual report.

You want supporters to have an enjoyable experience and walk away with a stronger understanding of how effective your nonprofit was over the last year. Visuals can help make that happen and tend to leave a more lasting impression.

Be Honest and Transparent

In fundraising, there are little surprises around every corner. No matter how organized and well-planned your team may be, you’re sure to encounter speed bumps along the way. It’s important to understand that this is a normal part of the process and not something that needs to be hidden from your supporters.

If your report isn’t fully honest or omits data simply because it wasn’t as positive as you would like, supporters may grow wary. Instead, briefly mention any missteps you encountered, why you believe they occurred, and how you plan on preventing them from happening again in the future.

This will show donors how adaptable and transparent your organization is, which in turn will likely build more trust and enthusiasm for the work you do throughout the year.

In your report, address changes you’ll be making in the future based on new data, supporter feedback, and the lessons learned from the year’s setbacks or hurdles. By doing so, you demonstrate your organization’s receptiveness and dedication to internal improvement. There’s no need to go too in-depth with this data, but it should still be briefly addressed in your annual report.

Inspire Future Action

After reading your report, you want donors to ask themselves, “what’s next?” Since the end goal of your annual report is to garner continuing support for your cause, make sure you’re guiding readers in the right direction.

Some of the ways you can encourage readers to get involved include:

5. Volunteering
5. Participating in matching gift programs
5. Attending fundraising events
5. Joining online fundraising campaigns
6. Making a planned gift

The more opportunities and events you mention, the more likely you are to have a reader find one that fits their specific interests and level of donation capability. If you create your annual report online, be sure to clearly position the link to your donation page, so readers can easily make a contribution.

Along with this, you’ll want to make it easy and straightforward for readers to connect with your organization across a variety of platforms. This includes incorporating your homepage URL, direct contact information, the physical location of your nonprofit, social media account handles, and links to any other relevant information.

Formatting and Distribution

Once you make it a point to create an annual report each year, you’ll want to dedicate a page on your website to housing all your annual reports and related materials. To save your nonprofit time and money, it’s best to carefully pick and choose who will receive a copy of your annual report and in what format.

Since every donor, volunteer, and prospective donor is different, you’ll want to use a multi-pronged approach in sharing your annual report. Depending on your unique nonprofit’s resources, this will look different and may change to some degree from year to year.

However, it’s still important to maintain a consistent brand to help people feel more connected to your organization and its mission.

Print and Virtual

Be sure to set aside some time and possibly money for your annual report. Having a budget to work with can further help you in tailoring your distribution plan. The two main types of annual report you can create include hard copies and digital copies, each of which have a variety of options within them.

Mixing and matching different formats and distribution methods will help you reach the widest possible audience, while remaining efficient in the process.

Hard Copies

Just as it sounds, hard copies of an annual report consist of physical forms that can be dispersed through the mail, in person, or both. Hard copies of your annual report will cost the most, but there is still a range of affordable prices within this formatting option. A few of the most popular physical forms of an annual report include the following:

• Bound Books: A bound book is perhaps the most formal way to organize your annual report in print. These can range in length from a handful of pages up to around 100. There is no perfect length for a bound book, just enough to cover what you want to include in a captivating way.
• Self-Mailers: A self-mailer is a format that does not require an envelope. It is still longer form, so you can include plenty of information from your full annual report. Since there is no envelope, it may encourage more people to browse through it at home.
• Brochures: Brochures can be much smaller than a book or self-mailer, making them a great way to give people the highlights of your annual report with some added detail. These too can be mailed or set out on a table for people to take in at their leisure.
• Postcards: The most economical print option, postcards may be the best way to reach your remaining lower-level donors with a hard copy of your annual report featuring only the biggest highlights from the year.

Whichever print method you choose to take, if you do, be sure to tailor each one to match and optimize the physical space it provides.

For example, while incorporating visual aids in any format of your annual report will enhance engagement and readability, it may be best to fill a postcard with statistics and visuals, so you can make the most of its limited real estate.

Additionally, you don’t have to provide every recipient of your printed annual report with the same format. In fact, doing just the opposite will help you maximize your resources. One way to save on printing costs is by reserving bound book copies of your annual report for your major donors, grant givers, and loyal supporters.

Digital Copies

Your annual report home page is an ideal spot to house and link all your online resources, which again can be multi-faceted and work in conjunction with any print materials you elect to make. A few formats you can use to develop digital copies of your annual report include:

• PDFs: One way to think about PDF is like the digital version of a bound book. These can be as long or short as you’d like or require them to be and should also include plenty of visuals throughout. It’s easy to incorporate things like videos and links, too, so readers can continue learning more about your nonprofit in different ways.
• Videos: Show-and-tell remains one of the most effective types of communication and connection and videos are just that! Videos can include people speaking directly to the camera, a voice over, visuals, writing, and much more. If you decide to make a video, take care to consider things like lighting, perspective, sound quality, and the script.
• Other Interactive Media: The sky is the limit when it comes to building a creative, engaging annual report. On your annual report homepage, you might consider setting up slides that visitors on your site can browse through. Furthermore, you may want to use interactive visuals that allow readers to explore the parts of your annual report that interest them most in greater depth.

Choosing to make a digital copy or copies of your annual report will most likely save you money. They are easily accessible and reach the eyes and ears of a wide audience very quickly. Having a digital copy of your annual report online also enables people to find it and read at a future date.

When it comes down to it, you know your organization and its donors best. Lean on this knowledge when deciding how to publish and who to distribute your annual report to each year. The more eyes on it, the better!

Wealth Screenings and Annual Reports: How Are They Linked?

You may be wondering how iWave and our next-generation platform can help with crafting your annual report. If a major donor has made an appearance on a likeminded organization’s annual reports, you might consider it a key philanthropic indicator. You can then reach out to these potential donors with your detailed report in hand.

Check out our Wealth Screening Guide

Using high-quality donor datasets from related organizations can help guide you along a more efficient and fruitful fundraising path both now and moving forward.

At iWave, we specialize in finding these Hidden Gems, so you can focus your time and energy on building connections with prospective donors and engaging current donors. Each of our clients is also given personalized onboarding and unlimited support to ensure they can take full advantage of our nonprofit fundraising intelligence and make the most of every ask.

Contact us today for a free demo or fundraising assessment to find out more of the ways we can get your annual report in the right hands!

The post Best Practices of a Nonprofit Annual Report appeared first on Kindsight.

IRS form 990s are loaded with valuable financial information, but that information can be buried within dozens of pages, endless tables, addendums, and attachments. In this blog, and in greater detail during a webinar scheduled on May 20, 2020, you will learn how to streamline your review process. Find out which fields and tables to focus on, how to understand the information presented, and learn how to interpret that information to determine capacity. 

What is a 990?

A 990-tax return is the equivalent for a nonprofit of a personal tax return for an individual. A 990, like a 1040, is a financial document that most tax-exempt/nonprofit organizations are required to file annually with the Internal Revenue Service. A significant difference between personal tax returns and 990s is that 990s are made public, making them an excellent source of financial information for prospect research and fundraising. 

In most cases, for prospect research and fundraising purposes, the 990s you will be reviewing will be for private foundations and public charities. Which fields you look at, and how you interpret the information depends on the entity type. Some of the information reported on in a 990, and what will be identified here, includes: the nonprofit’s official name, address, the IRS designated nonprofit type, the mission statement, grant guidelines, assets, giving, staff and board membership, and donations made by board members to the nonprofit. 

Where Can You Access 990s?

You can find 990s through your iWave subscription, by searching under the “Foundations” tab. 990s for both public charities and private foundations are searchable by name.  

Which Organizations File 990s?

Most nonprofits file 990s. All private foundations and nonprofits with gross receipts totaling greater than $50,000 file 990 tax returns. (Gross receipts are a tally of all sources of revenue for the filing year.) Nonprofits with gross receipts totaling $50,000 or less are eligible to file shorter e-forms, 990-N forms. 

Which Organizations Do Not File 990s?

Most entities designated as nonprofits by the Internal Revenue Service file 990s. Entities without that designation do not file 990s. Unsure whether an organization is a nonprofit? Look it up by entity name here: IRS Tax Exempt Organization Search. Donor-advised funds can cause some confusion, as they seem to resemble nonprofit entities, but donor-advised funds are administered by community foundations or charitable arms of companies, such as Vanguard, Fidelity or Charles Schwab. The administrating nonprofit will file a 990, but the individual donor-advised fund does not.

How to read a 990?

It might be helpful to look at examples of 990s as you read along. Start on page one, and search through the 990 for the fields and pages described below. 

Tax-Exempt Entity Type

A private foundation will be identified at the top of the 990 form as the, “Return of Private Foundation.” A public charity will have, “Return of Organization Exempt From Income Tax,” at the top, with the specific type of tax-exempt status recorded below in Box I. The options for tax-exempt status types are: public charities and other types of 501 (c) entities (access the complete list here); 4947(a)(1), which is a charitable trust that is treated as a private foundation; and 527, which is a political organization. 

(A private operating foundation is different from a private foundation. A private operating foundation supports its own exempt programs/activities and has different IRS rules from private foundations. Learn more about private operating foundations in the webinar on May 20th.)

Contact Information

The official, full name of the nonprofit is listed at the top of the 990 form, as is the mailing address, the principal officer’s name and address, and the telephone number.  

Fiscal and Filing Year

The filing year is listed in bold in the right margin at the top of the form. Under the filing year, you will find a beginning and ending date. This is the nonprofit’s fiscal year, which may differ from the calendar year. It is useful to know the fiscal year, as a nonprofit is required to file an annual 990 five months and fifteen days after the end of the organization’s fiscal year.  

Mission Statement and Grant Guidelines

Public charities that do not have websites or a public presence still will have mission statements listed on the first page, under Part I, line 1, or Part III, line 1. Under Part XV, line 2, a to d, for private foundations with assets of $5,000 or more, you will be able to determine whether grants are given only to preselected organizations, see a description of grant applications guidelines, and find directions for sending grant applications and letters of inquiry. 

Foundation Assets

Box I on page one of a private foundation’s 990 lists the fair market value of all assets. Private foundations, excluding private operating foundations, payout or donate five percent of assets annually. The five percent total, or the payout figure, includes any qualifying charitable activities including grant awards, as well as the money needed to run the foundation. If your organization assigns capacity ratings to foundations, you could use five percent of the assets, listed in Box I, as the basis for an estimate of the foundation’s capacity. 

Foundation Grant Awards

All nonprofit organizations that received grants and donations from the foundation during the reporting year are listed under Part XV, line 3. The ranges of grant amounts or the largest grant amounts could serve as a guide for your organization’s ask or as the basis for an estimate of the foundation’s capacity rating. 

Officers, Trustees, Directors, Key Employees, and Compensation

Under Part VII, section A for charities, and Part VIII, lines 1 to 3 for foundations, are lists of all officers, directors, and foundation/charity managers, key employees, and the highest compensated employees and trustees. When you are researching an individual, who is a trustee or a high-ranking employee of a nonprofit, look at these sections to find his or her compensation.

Schedule of Foundation Contributors

Contributions of money or property of $5,000 or more from a single contributor to a private foundation are listed on Schedule B, which is a supplemental form to the 990. The name of the contributor, address, and total contributions are listed. Contributors can be trusts, companies, associations, or people. Contributions from people are usually made by members of the foundation’s board and might be the largest donation you will be able to find for the individual.

What Else?

There is a lot more information included in 990s than what was described here. After you get a feel for the sections described above, you may want to dig further for more financial information for specific charities and foundations in 990s. The Internal Revenue Service provides plenty of assistance. Start with the instructions for 990s for private foundations and public charities. Google is your friend here too. When you don’t understand a term or a section, try a quick search, find the answer, and keep digging! 

Susan Hammerman is a former librarian with more than fifteen years in the field of prospect research. She is the owner of Prospect Research Consulting LLC. 

If you want to learn more, join Susan for a webinar on May 20th, 2020! As always, this is a free session, but save your spot by registering here!

About the Author: Susan Hammerman is a former librarian with more than fifteen years of experience in the field of prospect research. She is the owner of Prospect Research Consulting LLC.

The post The 411 on 990s: How to Read a 990 Tax Return appeared first on Kindsight.