Posts

We’re taking a brief break from the details about the logistics of donation substantiation and the benefits of giving stocks to talk about one of my favorite subjects: books! 

The people of Iceland have a lovely tradition called jólabókaflóð where books are exchanged with loved ones on Christmas Eve and then a cozy night is spent reading together. If you choose to start your own “Yule book flood” holiday custom, consider passing along one of the GoFisch Book Club selections we’ve chosen over the year. Which brings us to this month’s title: Winners Take All: The Elite Charade of Changing the World.Winners Take All

The author, Anand Giridharadas, explores how rich and powerful donors utilize donations not just in attempt to change the world, but to shape policy. He presents an argument that the wealthiest of donors perpetually intend to do good, but never intend less harm. The author explores tough questions, which at times, are hard to reconcile with the current state of major giving in the world today. Giridharadas also offers ideas, with a call to action for everyday citizens, on how robust social change can, and should, be more egalitarian.

Not all of the ideas in Winners Take All will be popular with all (especially not the upper crust of the richest donors), but that’s what makes this book so intriguing. It’s not afraid to push the envelope on the conversation around how the public sector operates and delve into the realities of philanthrocapitalism.

What are your thoughts on Winners Take All? I’d love to hear how this inspires your charitable giving or influences your giving strategy. Want to discuss how you can make the most impact with your year-end donation? Don’t hesitate to drop me a line!

glittery ornaments

2018 marks the first tax year under the provisions of the Tax Cuts and Jobs Act. The law ushered in many changes, including an increase in the standard deduction. The deduction for single filers is now $12,000 (up from $6,350 for 2017) and $24,000 if you are a married joint-filer (up from $12,700). In reality, this means that the number of households claiming the itemized deduction (including their charitable donations) will reduce from 37 million to approximate 16 million (according to the Urban-Brookings Tax Policy Center). But, fear not. There are strategies to clear the initial standard deduction threshold.

What the Heck is Bunching?

One of the major options available to charitable donors is to “bunch” donations. To bunch donations you make larger charitable donations this year in a way that exceeds the standard deduction and then smaller ones next year to compensate. Depending on your charitable giving capacity and goals, this means you could alternate every other year or every few years.

Reminder, substantiated donations to a qualified nonprofit can be combined with mortgage interest and state/property taxes when calculating excess above the standard deduction limit. (The Greater Kansas City Community Foundation created a useful illustrated chart of this concept.

man in chair at christmas

Bunching in Practice

By way of example, instead of giving you “normal” $5,000 to charity annually, consider accelerating your gift two years worth of donations in 1 year. So you would end up giving $10,000 every two years. The $10,000 is the same amount you planned to give over the two years but strategically donated in a way that maximizes itemized tax benefits. With this option, you may claim your itemized deductions over the limit one year and then take the standard deduction the next.

Donor-Advised Fund

If you’re considering bunching donations, you may want to do so through a donor-advised fund (or DAF), which offers a unique level of donative flexibility. The DAF allows you to make charitable contributions and receive an immediate tax break for full donation, even though you can choose to recommend grants to your fave nonprofits from the fund at a later date and over time.

Questions about bunching or how to maximize your charitable donations under current federal and state tax laws? Don’t hesitate to contact me for a free one-hour consultation!

Thanks for reading the 25 Days of Giving series; this is the “gift” for day 3! Plan on coming back to the blog every day from now through Christmas Day.

Might this be a good season to consider being more generous to your place of worship? Generally, churches are considered to be public charities. This means they are typically exempt from local, state, federal, and property taxes. This also means donations can be deducted if you itemize your federal income taxes.

Allow me to offer up four tips which could allow you to give more to your church and pay less in taxes. It’s a win-win situation: make a financially wise contribution AND a difference in an organization you care about.

Tip 1: Consider All Your Assets

You need to consider ALL your assets for smart giving. Don’t just consider cash, but look at your entire basket. Here are three real-world examples:

  1. I know a farmer who doesn’t have lot of cash on hand—we’ve all heard the phrase, “land rich, cash poor.” But, farmland itself can be a very tax-savvy gift. So are gifts of grain.
  2. I know a young person who’s self-employed. Again, not lots of cash on hand. But, this person inherited an IRA from a relative, and must make annual required minimum distributions [RMDs]. IRA RMDs can be a tax-wise gift.
  3. I also know a couple who recently retired. The couple has three life insurance policies, which made lots of sense when their kids were younger. Their kids are now grown and independently successful. A paid up life insurance policy could be signed over to their favorite charity.

Your individual facts and circumstances are unique. Consider seeking a qualified attorney or financial advisor to look at your whole basket of assets.

Tip 2: Consider Long-Term Capital Gains Property

Gifts of long-term capital assets, such as publicly traded stock and real estate, may receive a double federal tax benefit. Donors can receive an immediate charitable deduction off federal income tax, equal to the fair market value of the stock or real estate.

Records are required to obtain a federal income tax charitable deduction. The more the charitable deduction, the more detailed the recording requirements. For example, to receive a charitable deduction for gifts of more than $5,000, you need a “qualified appraisal” by a “qualified appraiser,” two terms with very specific meanings to the IRS. You need to engage the right professionals to be sure all requirements are met.

Second, assuming the donor owned the asset for more than one year, when the asset is donated, the donor can avoid long-term capital gain taxes which would have been owed if the asset was sold.

Let’s look at an example to make this clearer. Sara Donor owns stock with a fair market value of $1,000. Donor wants to use the farmland to help her favorite causes. Which would be better for Sara? To sell the stock and donate the cash? Or, gift the stock directly to her church? Assume the stock was originally purchased at $200 (basis), Sara’s income tax rate is 37%, and her capital gains tax rate is 20%. 

Donating cash versus donating long-term capital gain assets, such as publicly traded stock Donating cash proceeds after sale of stock Donating stock directly
Value of gift $1,000 $1,000
Federal income tax charitable deduction ($370) ($370)
Federal capital gains tax savings $0 ($160)
Out-of-pocket cost of gift $630 $470

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Again, a gift of long-term capital assets made during lifetime, such as stocks or real estate, can be doubly beneficial. The donor can receive a federal income tax charitable deduction equal to the fair market value of the asset. The donor can also avoid capital gains tax.

Tip 3: Consider Endow Iowa Tax Credit Program

Under the Endow Iowa Tax Credit program, gifts made during lifetime can be eligible for a 25% tax credit. There are three requirements to qualify:

  1. The gift must be given to, or receipted by, a qualified Iowa community foundation (there’s a local community foundation near you).
  2. The gift must be made to an Iowa charity.
  3. The gift must be endowed (i.e., a permanent gift). Under Endow Iowa, no more than 5% of the gift can be granted each year – the rest is held by, and invested by, your local community foundation. This final requirement is a restriction, but still, in exchange for a 25% state tax credit, it must be seriously considered by Iowa lawyers and donors.

Tip 4: Combine the First Three Tips!

Let’s look again at the case of Sarah, who is donating stock per the table above. If Sarah makes an Endow Iowa qualifying gift, the tax savings are dramatic:

Tax benefits of donating long-term capital gain asset with Endow Iowa
Value of gift $1,000
Federal income tax charitable deduction ($370)
Federal capital gains tax savings ($160)
Endow Iowa Tax Credit ($250)
Out-of-pocket cost of gift $220

NOTE: ABOVE TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY. ONLY YOUR OWN FINANCIAL OR TAX ADVISOR CAN ADVISE IN THESE MATTERS.

Note Sara’s significant tax savings! In this scenario, Sara receives $396 as a federal charitable deduction, avoids $160 of capital gains taxes, and gains a state tax credit for $250, for a total tax savings of $806. Put another way, Sara made a gift of $1,000 to her favorite charity, but the out of pocket cost of the gift to her was less than $200.

giving package with green spruce

Each donor’s financial situation and tax scenario is unique; consult your own professional advisor for personal advice. I’m happy to offer you a free consult to discuss your charitable giving options. I can be reached by phone at 515-371-6077 or by email.

blue and tan present

Thanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.

In December there is gift giving with wrapping paper abound, but when it comes to charitable giving the important assets (like your retirement assets) don’t need ribbons or bows. Let’s first focus on a major retirement asset giving tool, the IRA charitable rollover.

IRA Charitable Rollover

This federal law allows donors age 70½ and older to make direct distributions of up to $100,000 from his/her IRA each year to any qualified charity. The donation is not treated as taxable income and, moreover, counts toward the donor’s required minimum distribution for that year.

At the end of 2015, Congress made the IRA charitable rollover a permanent giving tool, unlike the year-to-year renewal basis they had operated on since the introduction of the IRA charitable rollover in 2006 (as part of the Pension Protection Act).  The result? Tax savvy IRA account holders can now plan charitable giving in a more reliable way.

Other Options

There are two other accessible ways to direct retirement benefit plan assets to your favorite charity:

  • Gifts at death via beneficiary designations.
  • Withdrawals over age 59½ followed by outright deductible gifts that can effectively result in tax-free retirement plan gifts.

Keep in mind, too, that the IRA charitable rollover applies only to IRAs. These two options — gifts at death via beneficiary designations and withdrawals by those older than 59½ — will work with virtually all qualified retirement plans, including 401(k)s and 403(b)s. baubles on a green tree

Naming your favorite charity as beneficiary

Donors considering charitable bequests may not realize that they can make a meaningful gift simply by naming their favorite charity as the beneficiary of an IRA, 401(k), 403(b), or other retirement plan. Giving retirement assets in this way is easy, and does not require drafting or amending a will or trust. A donor simply has to contact his/her financial institution holding the retirement benefit plan and request a change of beneficiary form.

Note, however, that if the account holder is married, the spouse should be informed and may have to consent to the gift. The plan assets may also be left to a charitable or marital trust[s]. In the latter case, professional advisors should be consulted. (Hint: call me!).

Give now!

Donors could also choose to make current gifts using funds withdrawn from their qualified retirement plans. Individuals over age 59½ may generally withdraw funds from retirement plans without penalty, make a gift with these funds, and then claim an offsetting charitable deduction. In most cases, a gift made in this manner will be a “wash” for tax purposes.

Let’s take a quick example. Rebecca (age 64) wants to make a very generous donation of $10,000 to her favorite charity. She can withdraw $10,000 from her IRA or 401(k) account, and make that donation. Assuming she itemizes her tax deductions, the $10,000 donation should leave her “even Steven” with regard to taxes – the $10,000 in income is offset by the $10,000 charitable deduction, resulting in zero net income taxes.

Advice is Priceless

The decision to want to give to you favorite causes this season is easy. Knowing exactly where to start with smart giving can be a little more complex. If you have questions about the IRA charitable rollover or any other giving strategy, don’t hesitate to reach out via email or by phone (515-371-6077). My firm’s mission is to maximize charitable giving in the state of Iowa and I want to help YOU maximize your personal charitable giving (in a way that is also tax efficient).

Hands giving ornament

Thanks for reading the 25 Days of Giving series! Plan on coming back to the blog every day from now through Christmas Day.

25 days of Christmas - Holiday giving

Tangible personal property is a fancy way of saying “stuff,” such as a painting, computer, furniture, and collectibles (excluding securities, cash, and real estate).  So, if you want to donate your stuff to your favorite charity, what are the tax consequences?

Related Use

The amount of your federal income tax charitable deduction depends on the concept of “related use.” If appreciated tangible personal property is considered related to the charity’s exempt purpose, the deduction is based on fair market value (FMV) and available to the extent of 30% of your adjusted gross income (AGI).

If property is considered unrelated to the public charity’s exempt purpose, you must reduce the FMV by any amount that would have been long-term capital gain had you sold the property for its fair market value. (In short, if the FMV was greater than the basis in the property, your deduction is limited to your basis.)

To sum it up: in order for a donor of tangible personal property to be able to deduct its full FMV, the charity must use the object in a manner that is related to its (the charity’s) exempt purpose. A classic example is the gift of a piece of art, like a sculpture or painting, to an art museum.

Hypothetical

This concept of “related use” can have very profound tax consequences. For instance, assume Jill Donor owns a painting which is now worth $100,000, but Donor purchased it for only $20,000.

If Donor gives this painting to an art museum that keeps and displays the painting, Donor can deduct the painting’s full $100,000 FMV. If Donor gives the same painting to, say, a nature conservancy, which will sell the painting and use the proceeds, Donor can deduct only her $20,000 cost.

Note, that even if the object is potentially related to the charity’s mission–such as a painting given to an art museum–if the charity’s intention is to sell it upon receipt, then the gift is not for a related use and the donor’s deduction will be limited accordingly.

From our hypothetical, it doesn’t necessarily have to be gifted to a museum to be considered for a related use. In Private Letter Ruling 9833011, the IRS ruled that a gift of art to a Jewish community center would be for a related use, as the artwork had both religious and cultural significance. Also, a painting gifted to, say, a hospital may be for a related use if the hospital will display it in a common area so that it helps foster a healing environment for patients.

hands holding evergreen fir

Takeaway

The big takeaway for nonprofits? Nonprofit boards and staffs should know and understand about “related use,” so they can recognize the issue if it arises.

The big takeaway for donors? Donors should obtain in writing the charity’s intent to use the property for a purpose related to its mission.

I want to help you, whether you’re a nonprofit organization or donor, wisely maximize your charitable giving. Don’t hesitate to reach out by phone (515-371-6077) or email (gordon@gordonfischerlawfirm.com).

red ornaments Endow Iowa Tax Credit

 Thank you for reading the 25 Days of Giving series! In the spirit of the holiday season I’m covering different aspects of charitable giving…perfect to get you thinking about your end-of-year giving.

There are many, many reasons Iowa is great place to live and work. One reason is the Endow Iowa Tax Credit Program—a smart way to stretch your charitable dollars. Iowa community foundations provide exclusive access to the Endow Iowa Tax Credit program. Giving through the Endow Iowa program allows Iowa taxpayers to receive a 25% Iowa tax credit, in addition to the federal charitable income tax deduction, for qualifying charitable gifts.

The Endow Iowa Tax Credit Program provides unique opportunities to meet philanthropic goals while receiving maximum tax benefits. Highlights of this program include:

  • A variety of gifts qualify for Endow Iowa Tax Credits including cash, real estate, grain, appreciated securities, and outright gifts of retirement assets. In fact, appreciated assets, like stocks or real estate, can provide even better value because the donor may avoid capital gains taxes.
  • To be eligible, gifts must benefit an Iowa charity.
  • Tax credits of 25% of the gifted amount are limited to $300,000 in tax credits per individual for a gift of $1.2 million, or $600,000 in tax credits per couple for a gift of $2.4 million, assuming both are Iowa taxpayers.
  • Eligible gifts will qualify for credits on a first-come/first-serve basis until the yearly appropriated limit is reached. If the current available Endow Iowa Tax Credits have been awarded, qualified donors will be eligible for the next year’s Endow Iowa Tax Credits. Donors should be encouraged to to act as early in the year as possible to ensure receipt of credits as soon as possible.
  • All qualified donors can carry forward the tax credit for up to five years after the year the donation was made.

There is one “catch.” Funds can only be granted at a spend rate of 5% per year. It should also be noted that the Endow Iowa Tax Credits are capped. The Iowa Legislature sets aside a pool of money for Endow Iowa, and it’s available on a first-come, first-serve basis. Submitting an application at the beginning of the tax year is advised, as tax credits often run out toward year’s end. In fact, this year approximately $6 million in tax credits were awarded and there are no more available credits to be granted. However, you can submit your application to be placed on the wait list for 2019 tax credits.

In exchange for 25% Iowa tax credit and the opportunity to have an even greater impact on their philanthropic interests in the state of Iowa, now and into the future, the Endow Iowa Tax Credit Program should be seriously considered by all. The impact is immense: in 2016, donors received tax credits for more than 4,030 separate donations to at least 120 different community foundations and affiliate organizations through Endow Iowa. And, since 2003, more than $215 million has been invested through the program to improve residents’ lives.

Any questions or thoughts on how the Endow Iowa Tax Credit Program could mean big benefits for your finances and your state? Don’t hesitate to contact me.

Santa with Heart

Thanks for reading the 25 Days of Giving series! Share with friends, family, & colleagues to inspire others to also make meaningful year end gifts this season…and plan ahead for 2019 charitable goals.

Under the new tax code, you may have changed the ways in which you give or the tax-beneficial strategies you employ with your charitable giving. What hasn’t changed, is that you may choose to deduct from your federal income tax any charitable contributions of money or property made to qualified organizations if you itemize your deductions. But, there are record keeping requirements you’ll want to stay on top of, so you’re not scrambling during tax time!

Payroll deduction substantiation

Making a charitable deduction directly from your paycheck is a great and steadfast way to be sure to meet your charitable giving goals. For charitable contributions made via payroll deductions, the donor needs two documents to substantiate the gift:

  1. a pay stub, W-2, or other document furnished by the employer that sets forth the amount withheld from the taxpayer during a taxable year by the employer for the purpose of contributing to a charity;
  2. a pledge card or other document prepared by or at the direction of the charity that shows the name of the charity.

Donors who give to a local United Way or other organizations that funnel contributions to other charities need to only obtain the pledge card or other document from the United Way and not from the affiliated charities which ultimately receive the money.

Payroll deductions of $250 or more

Tax law requires that for any contribution of $250 or more, the taxpayer must substantiate the contribution by a contemporaneous written acknowledgement of the contribution by the charity. For payroll deductions, the contribution amount withheld from each payment of wages to a taxpayer is treated as a separate contribution for purposes of the $250 threshold.

So, for example, a taxpayer who gave $300 over the course of a year through payroll deductions, $30 per paycheck over ten paychecks, would not trigger the $250 substantiation requirement. The substantiation requirement would only kick in if $250 or more is withheld from each paycheck.

If any of this is confusing, know you don’t have to navigate these requirements just by yourself. Contact me at any time to discuss your situation and charitable giving goals. We’ll figure out the best course of action together!

For better or worse, for most nonprofits in the U.S., end-of-year giving comprises a significant portion of the charitable donation pie. In fact, between October and December nonprofits receive half of all annual donations! Yes, you read that right.

The last quarter of the year accounts for donations equal to those raised the other nine months out of the year. Even more intriguing? 33 percent of donations made in December occur on the 31st of the month and 12 percent of all giving happens in the last three days of the year….talk about last-minute donors!

snow-globe-christmas

Why is this the case? There are multiple reasons. First, time is of the essence for donors to make a tax-deductible charitable gift before January 1 of the new year. Nonprofits are also racing to meet annual fundraising goals and typically spend a significant portion of resources in order to exceed fundraising levels of the previous year. Additionally, the holiday season is synonymous with the actions of gifting, love, peace, joy, and a time to be generous. This means donors can be extra receptive to a charity’s marketing campaign that extolls these feelings that now is the best time for giving.

This is all to say, last-minute fundraising efforts can and should be used to target prospective last-minute donors. It’s a busy time of year for all, but the return for a strong end of year fundraising push can be well worth the time and energy. Consider these quick tips:

What are you Doing New Year’s Eve?

new year sparkler

Because New Year’s Eve day is such an important day for charitable donations, do not hesitate to keep fundraising through the very end of the year. Make those calls and get out the digital media campaigns. Reinforce to donors that December 31 is not too late and they’ll qualify for the charitable deduction federal income tax benefits on 2017 taxes.

Make Your Homepage Your Home Base

Your website should be the home base for year end giving. If you don’t have one yet, publish a dedicated page (or site) specifically for end-of-year giving information and brand it with your associated year end campaign. It doesn’t have to be complex, just consolidate the basics of who you are, what your mission is, and how donations help solve an issue or advance a cause on one campaign page.

homepage Mac fundraising

To that point, also take a review of your online donation page. If you can, brand it to fit with your end-of-year campaign…branded donation forms can mean up to seven times more than a non-branded, generic donation portal. Also, make sure the online donation portal is easily accessible no matter “where” the donor is coming from. Also, ensure all giving and donations portals are optimized for mobile access. (18 percent of all digital-made donations come from mobile devices.)

Ready, Set, Action

If you haven’t already, make a 60-second (or shorter) video explaining how donations to your charity can make an impact. A video can be an incredibly powerful tool for cutting through the end-of-year giving noise; videos can leave a lasting impact of imagery and tell an emotional story often better than just words or photographs can. According to a Google survey on online donation patterns, 57 percent of online donors make a charitable donations after watching a fundraising video that tells an inspiring story. This is exemplified through the ever-growing crowdfunding platforms; crowdfunding pages that have a video promo component raise four times as many donations as those that don’t. Just like your website and online donation pages need to be optimized for mobile, more than half of all videos happen on mobile.

video on iphone

Video content creation can sound scary at first if you don’t have a marketing team in place to facilitate, but it doesn’t have to be. Consider these tips, bust out your iPhone, acquire a tripod if possible, and use your laptop’s basic editing software. If you don’t have enough “last minute” time for that, shoot a video like you would for your own personal Instagram story or Facebook page.

Communicate, Communicate, Communicate

Remind your prospective donors what you stand for and what benefits they stand to gain with at least one weekly email each week before the end of year. Also, send out a special dedicated email early on both December 30 and December 31. As most year-end donors know they will in fact donate, they’re just undecided about how much they will actually give. Make it ridiculously easy for donors to “see” what their donation could do.

In terms of timing, for example, on December 31  send out follow-up emails to only those donors who didn’t open the first iteration of the communication. Stay on message with all social media postings and branded links back to your donation page.  

Celebrate!

After the year end fundraising push, don’t forget to reward your nonprofit’s hardworking staff and volunteers! Refresh, refocus, and get ready to tackle your next year’s fundraising goals.

Happy new year headband

What year-end fundraising tactics have worked well for your charity? Share in the comment section below. If you’d like to discuss any aspect of nonprofit fundraising, don’t hesitate to reach out via email (gordon@gordonfischerlawfirm.com) or phone (515-371-6077).

The title of this sounds pretty lacking in the “merry and bright” department…especially considering this is the 25 Days of Giving series! But, the name here describes a little-known deduction beneficial for volunteers…and nonprofits to stress to volunteers to indeed encourage more volunteering!

The IRS does NOT allow a charitable deduction for volunteering your services. However, out-of-pocket expenses relating to volunteering are deductible. Yes, seriously!

Any given charity should provide volunteers with a description of the contributed services and state whether there has been any transfer from the charity of goods or services back to the donor. In addition to other out-of-pocket expenses, mileage is deductible at the IRS rate. Also, expenses like tolls and parking can be deductible.

For example, if a volunteer travels to attend a meeting or conference sponsored by the charity, then there is a deduction only if there is “no significant amount of personal pleasure” in the meeting. This has become known as the “no smile” rule. To be deductible, the principal purpose of the meeting must be to further charitable goals (aka operative mission). Which, if you think about it, is something worth smiling about!

2 girls "no-smile rule"

Any questions as to what donors can and can’t deduct? If you’re a nonprofit organization you may have questions about the extent of information you’re required to provide. I welcome any questions on the topics. Gordon can be easily reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com.

heart in pages of book

Welcome to the newest post in the 25 Days of Giving series. Have questions or a topic  related to charitable giving you want covered as a part of the series? Contact us!

You want your favorite charity to be wildly successful. Whether you’re working for the nonprofit as staff, serving on the board of directors, or assisting as a donor or volunteer, you want your nonprofit to have every chance to reach its goals and objectives. 

The Internal Revenue Service (IRS) strongly encourages nonprofits to adopt specific governance policies to limit potential abuse, protect against vulnerabilities, and prevent activities that would go beyond permitted nonprofit activities. The IRS also audits nonprofits, just as it audits companies and individuals, and having these policies in place can only help you should you be audited. Finally, and perhaps most importantly, having solid policies and procedures in place will provide foundation for soliciting, accepting, and facilitating charitable donations. 

Each nonprofit is unique, and accordingly policies and procedures needed will vary for each. For instance, a non-operating private foundation will likely need a different set of documents than a public charity. However, most nonprofits will want, at the very least, to consider having the following policies in place. 

Articles of Incorporation

Articles of incorporation are necessary to even form a nonprofit corporation; the document is filed with the state and accompanied by a filing fee. This policy can be known by other monikers as “certificate of incorporation,” “articles of organization,” or “charter document.” Think of this as the constitution of the organization. While it can be fairly short, there are some necessary elements in the articles that are required for federal tax-exempt status. Those elements include a statement of purpose, legal address, emphasis on not-for-profit activities, duration, names and address of director(s), and a dissolution clause, among others. You may want to check out the IRS’ sample charter.

Board Roles and Responsibilities

Nonprofit board members are generally tasked with two major responsibilities of support and governance. A board’s rules and responsibilities document should outline the requirements and responsibilities of board members. Some examples of basic components include fundraising participation, determining the organization’s mission and direction, selecting and regularly evaluating the nonprofit director/CEO, and protection of public interest. A policy regarding board roles and responsibilities should encourage nothing short of ethical and legal integrity within board members.

boardroom chairs

Bylaws

If you’ve ever been part of any board or committee, you’ve definitely heard reference to the bylaws and received a copy upon joining the organization. Nonprofit bylaws serve as the internal operating methods and rules that specify things like the election process of directors, employee roles within the nonprofit, and operational manners of meetings. Specific language in the bylaws is not required by federal tax law, but some states may require nonprofits to have written bylaws to be considered tax exempt. This document can most often be used to resolve uncertainty between board members and takes the guesswork out of operations.

Code of Ethics

Just as it sounds, a code of ethics document puts in place a set of guiding principles for behavior, decisions making, and activities of those involved in the nonprofit, including board members, employees, and volunteers. While principles innate to your organization such as honesty, equity, integrity, and transparency may be understood by all involved, this formal adoption allows those involved to make a formal commitment to ethical actions and decisions. Sometimes this document is known as a “statement of values,” or “code of conduct.” Many organizations post their code on their website to demonstrate accountability and transparency.

Compensation Policy

Competitive compensation is just as important for employees of nonprofits as it is for for-profit employees. Having a set policy in place that objectively establishes salary ranges for positions, updated job descriptions, relevant salary administration, and performance management is used to establish equality and equity in compensation practices. A statement of compensation philosophy and strategy which explains to current and potential employees and board members how compensation supports the organization’s mission can be included in the compensation policy.

Confidentiality

A nonprofit’s board members have a duty of confidentiality due to their fiduciary obligation to the organization. This duty is there regardless of any written policy or not, but it’s certainly a best practice to clarify and explain why and how confidentiality is important to the specific organization. A confidentiality policy can include elements such as the following:

  • definitions of what matters are considered confidential
  • determination to whom the policy applies
  • statement that board members do not make any public statements to the press without authorization
  • a process by which confidential material may be authorized for disclosure

secret mouth

Conflict of Interest

This is arguably one of the more essential policies a nonprofit board should adopt. A conflict of interest policy should do two important things:

  • require board members with a conflict (or a potential conflict) to disclose it, and
  • exclude individual board members from voting on matters in which there is a conflict.

Note the IRS Form 990 asks whether the nonprofit has such a policy as well as how the organization manages and determines board members who have a conflict of interest. This policy is all too important as conflicts of interest that are not successfully and ethically managed can result in “intermediate sanctions” against both the organization and the individual with the conflicts.

Document Retention

A document retention policy doesn’t mean that EVERY piece of paper and digital report should be kept for a specific duration. But, consider if a document is unknowingly tossed by a nonprofit employee and is later needed in a legal matter. That can cause irrevocable damage. So, ensure all board members, staffers, and volunteers are trained and have a copy of the document retention policy, which should clarify what types of documents should be retained, how they should be filed, and for what duration. This policy should also outline proper deletion/destruction techniques.

Employee Handbook

An employee handbook is another one of the more common nonprofit documents. A quality handbook should clearly communicate employment policies and enforce at-will provisions to all employees. Employment laws are complicated and complex. An employee handbook written/reviewed by a licensed attorney is a good legal step toward avoiding employment disputes. (Yes, just as you need a lawyer to write your estate plan, you’ll need a lawyer to craft/review your employee handbook.) Review your employee handbook regularly, as an out-of-date or poorly written handbook can leave the organization open to employment ambiguity and conflicts.

Financial Policies and Procedures

This document specifically addresses guidelines for making financial decisions, reporting financial status of the organization, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investments reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place.

Endowment

This resolution concerns funds (and the interest from these funds) that are kept long term. It  generally aids the organization’s overall operations. An endowment policy should consider the purpose of the endowment, how the endowment will benefit the mission of the nonprofit, management practices of the endowment, disbursement policies, and investment strategy. (This blog post from GuideStar offers five steps to starting an endowment.)

Gift Acceptance

Gift acceptance is yet another policy the IRS considers to be a best practice for any tax-exempt nonprofit, and the gift acceptance policy can help set acceptance policies for both donors and the board/staffers. There is no federal legal requirement, but this policy does allow you to check “Yes” on Form 990. If well-written and applied across the organization, the policy can help the organization to kindly reject a non-cash gift that can carry extraneous liabilities and obligations the organization is not readily able to manage.

Outstretched hand

Investments

One way a Board of Directors can fulfill their fiduciary responsibility to the organization is through investing assets to further the nonprofit’s goals. But, before investment vehicles are invested in, the organization should have an investment policy in place to define who is accountable for the investment decisions. The policy should also offer guidance on activities of growing/protecting the investments, earning interest, and maintaining access to cash if necessary. Many organizations hire a professional financial advisor or investment manager to implement investments and offer advice. This person’s role can be accounted for in the investment policy.

Whistleblower

Nonprofits, along with all corporations, are prohibited from retaliating against employees who call out, draw attention to, or “blow the whistle” against employer practices. A whistleblower policy should set a process for complaints to be addressed and include protection for whistleblowers. Ultimately this policy can help insulate your organization from the risk of state and federal law violation and encourage sound, swift responses of investigation and solutions to complaints. Don’t just take it from me, the IRS also considers this an incredibly helpful policy:

“A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. (Instructions to Form 990)

Policies = Powerful

While these documents may sound like a lot of work, the time and energy you place into ensuring your nonprofit is set up for success will pay off in the long run by saving you legal and IRS fees, internal conflict, violations, and compliance issues. Plus, you can enlist a qualified nonprofit attorney to do the leg work for you! 

You may say, “My organization already has a great set of policies in place!” Which is great. But, you should continuously update them as needed/wanted. A policy from 2002 may have been perfect at the time, but could be in dire need of updates.

I’d advise making policies the main subject of a board meeting to review what policies have been adopted, which policies need revisions, and which policies you’re missing altogether. If you’re not sure where to start, or how policies should be drafted, read, or enacted, I would be happy to offer you a free one-hour consultation. You can also take me up on my 10 for 990 policy special.

I’m here to assist in drafting or revising your set of nonprofit policies, so don’t hesitate to contact me via email or phone (515-371-6077). We’ll schedule your free one-hour consultation and make a plan to set your organization up for success!

(Note this article is provided for general information only and not intended as legal advice for your specific nonprofit organization. Again, please contact me to discuss your organization’s unique needs.)