Michael Simkins, Author at Spokes | Resources for Nonprofits

Documentation for Your Donors

January 1, 2023 by Michael Simkins

It’s the new year and our donors will start to gather the necessary materials to prepare their income tax returns. It’s also a good time to be certain we have provided them with the appropriate documentation of their gifts. Here are two of the most important things to keep in mind.

Gifts of $250 or more

We need to provide donors with “contemporaneous written acknowledgement” of each gift of $250 or more, or separate gifts made on the same day that total $250 or more. Here, contemporaneous means that the donor has the documentation in hand by the time they file their annual return.

Your thank you letter to the donor can serve this purpose as long as it includes:

The date the gift was received (not pledged, but actually received)
Whether or not the donor received any goods or services in exchange for the donation and, if so, an estimate of their value.

For gifts you have already acknowledged with that information, you’ve met that requirement. But for those end-of-year, last minute gifts you receive, be sure to provide the necessary documentation promptly in January.

Quid pro quo contributions

When a donor does receive goods or services in exchange for a contribution to your organization, it is called a quid pro quo contribution. You must provide a written disclosure statement to donors if the contribution is greater than $75. Here’s an example. If for a donation of $100 the donor receives tickets to an event that would have cost $40, the deductible amount would be $60. However, because the total contribution exceeds $75, written disclosure is required. This can be done either when soliciting the gift or as part of your thank you once the gift is received. The written statement must:

Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the value of goods or services provided by the charity, and
Provide the donor with a good faith estimate of the value of the goods or services that the donor received.

For more specific information, visit the IRS at Substantiating Charitable Contributions.

Two Important New Employment Laws

December 17, 2022 by Michael Simkins

Pay Transparency

Among the new employment laws that go into effect January 1, 2023, two deserve special mention. One, referred to as “Pay Transparency,” applies to your nonprofit if you have 15 or more employees. Starting January 1, you’ll need to include pay range information in any job posting. In addition:

ALL employers must provide a pay scale to any current employee for their position upon request.
Employers must also maintain records of a job title and wage rate history for each employee during employment and for three years after separation from the company
All private employers with 100 or more employees must file pay data reports with the State’s Civil Rights Department, regardless of whether they are required to file a federal EEO-1 with the EEOC. (Note: nonprofits are considered “private employers.)

Retirement

The other change has to do with retirement programs. The CalSavers Retirement Savings Program is a state-run retirement program for employees who work for employers not offering a private-market retirement plan, such as a 401(k) plan. Previously, the law only applied to nonprofits with 5 or more employees. As of January 1, it applies even if you have only one employee.

Learn more

Spokes members can view the 60-minute video overview of these and other new HR-related laws for 2023. Sign into your account, click “access member benefits,” and go to the Video Library. You’ll find the recording in the Past Classes showcase. Not a member yet? Check out the member benefits.

Temporarily Suspending Operations

November 9, 2022 by Michael Simkins

Can a nonprofit hibernate?

One of our smaller nonprofit members recently asked me that question. The organization had formed to raise funds to build and operate a community pool but, as they put it, “hit a wall.” They aren’t ready to give up on their goal, but they need time to regroup and strategize.

The simple answer is perhaps, but there are many things to think about when addressing this issue. In legal terms, a hibernation for a nonprofit is called a “suspension of operations.”

According to Donald W. Kramer, an attorney with more than 45 years of experience dealing with nonprofits, “an organization can suspend its operations for a short period without losing its 501(c)(3) status.” The specific answer for any particular organization comes down to legal and factual issues, and each situation can be unique.

File your reports!

That said, there are some very important things to keep in mind. First and foremost, you still need to file your required reports with the state and federal government. For the IRS, that means your annual 990, whether it be the full 990, 990-EZ, or 990-N. If you should fail to do that three years running, your tax-exempt status will be automatically revoked, and you don’t want that! In California, that also means filing your annual 199 or 199N as well as your Statement of Information with the Secretary of State and annual registration with the Attorney General’s office.

Meet

Your board of directors needs to meet at least once a year. Since your board has said it does not want to dissolve, it should be meeting anyway to plan for the future and how you will resume active operation. Take minutes of these meetings and keep them on file.

Follow your bylaws

Be sure to re-read your bylaws. Going “into hibernation” does not mean you can forget about them. You still need to follow your bylaws. Do they say you will meet monthly? Do they say you elect officers every June? If your bylaws state you will do certain things at certain times, you still need to do those things—or, properly amend your bylaws to allow for your period of temporary inactivity.

Mind your money

Do you have money in the bank? Think carefully about how to manage it while your main activities are suspended. Do you have any ongoing expenses that you will face despite being in hibernation? Are some of the funds restricted and can only be used for the stated purpose for which they were given to you? Be prudent. Make a “hibernation budget.” Keep sufficient funds readily available for any ongoing expenses. Consider putting the rest in a short-term certificate of deposit. Also, be aware that should you end up deciding not to continue but to dissolve, that process involves expenses. It would not be a bad idea to set money aside for that, just in case.

Plan for the “Spring”

We are not talking Rip Van Winkle here. Rip snoozed for 20 years. Your model should be akin to grizzly bears. It’s an annual thing. According to the folks at Yellowstone National Park, “Male grizzlies come out of hibernation in mid to late March. Females with cubs emerge later, in April to early May.” Not only that, while they’re hibernating, bears do wake up and move around inside the den!

So, your organization is not just checking out completely or indefinitely. Get up and walk around the den. Set a goal for when you will resume active work. Figure out your path to full operations and start following it. If that seems like too much to do, then you may really want to consider dissolving rather than “hibernating.”

References

Don Kramer’s Nonprofit Issues
Annual and Filing Requirements, California Franchise Tax Board
IRS Publication 557 (01/2022), Tax-Exempt Status for Your Organization
Do Bears Really Sleep All Winter?

Beyond the Thank You Letter

October 16, 2022 by Michael Simkins

We all have some way of thanking our donors formally for gifts to our organizations. It might be an email or a postal letter. But then what? Are you done? Not if you want that donor to make the next gift.

Gillian Cole-Andrews recently shared ideas for making an annual calendar for continuing to engage your donors.

January. No one wants to give money in January. Send a “pre-tax letter” that thanks the donor for gifts made during the year, with a total figure of what was given.
February. This is the “lybunt” and “sybunt” month. That means you will write to your donors who gave to you last year but not this year, and those who gave to you some year but not this year. Write and thank them.
March. It’s “tour month.” Find a way to bring significant donors to see what you do, whatever it is.
April. Event month. Well, according to your organization’s calendar it might be a different month, but take advantage of whatever annual event you do to engage your donors in ways that reinforce their understanding of your mission and your work. If you have a big party, make it mean something in terms of what you do.
May. This can be your “annual appeal” in contrast to your end-of-year appeal.
June, July , August. Can you celebrate an anniversary? Of your organization’s existence? Of a program?
October. Send your impact report. Remind people that you exist and what you do and accomplish.
November. Tie a solicitation to something happening this month. Thanksgiving? Susan B. Anthony? Military Family Month?
December. This is your end-of-year annual appeal.

Certainly you can juggle some of these around or substitute different activities. The point is to create a annual plan for yourself to make donor appreciation and cultivation manageable.

For further reading:

Gifts of Stock

October 7, 2022 by Michael Simkins

A donor is interested in making a gift of stock to our nonprofit, but we don’t have a brokerage account. How can we accept the gift?

You may be tempted to wonder why not just have the donor sell the stock and then give the proceeds to the nonprofit. That is certainly an option, but often it is to the donor’s benefit to give the stock itself. For example, if the stock is worth more than when it was purchased, the donor avoids having to pay capital gains tax on the difference—and you get a bigger gift.

If your organization already has a brokerage account, the stock can be transferred directly. If not, you can look into opening one. That’s a particularly good idea if you expect to receive such donations frequently. A stumbling block, however, is that such accounts often have a significant minimum deposit.

If you don’t have a brokerage account and are not in a position to open one, organizations like the Community Foundation of San Luis Obispo County can help you. A charity itself, the Community Foundation can accept the gift, sell the stock, and pass the proceeds to your nonprofit.

This is also a good time to review your gift acceptance policy and make sure it is clear as to whether or not you accept gifts of stock and, assuming you do, what you will do with the gift. Often, it is best to sell the stock the same day it is received. Here are two good resources for more information on this topic: