Your supporters are the foundation upon which your organization operates and exists. Managing them, stewarding them, and accounting for their donations within the fund accounting framework requires time and organization. But one of the most unique things about managing the finances of a nonprofit can also be one of the biggest headaches if you aren’t prepared with a good system. This course will help you learn how to use nonprofit accounting to track your donations and keep your supporters happy.
Tracking Donations Separately From Other Income
Many nonprofits and churches think all income received is considered tax-deductible. However, there are often a number of forms of income they may receive that shouldn’t show up on the annual donation statement. If a donor receives goods or services in exchange for something, such as member dues or a meal at an event, that income needs to be tracked differently. So those transactions or portions of a transaction should not appear on donation statements as tax-deductible.
If your accounting software does not enable you to produce reports for tax-deductible and non-deductible income by person, you may need a new solution for your nonprofit. Keeping a separate log of your donations in Excel that notes the donor name, date, amount, and purpose of the donation can help.
Pro tip: You might also receive in-kind gifts to use or sell at a silent auction item, for example. Learn how to account for in-kind gifts in your accounting.
What Are You Required to Provide to Donors?
Donors who gave $250 or more must receive a written statement from the nonprofit to make a tax deduction. Typically, organizations send this annually by January 31 so donors have time to file their tax returns. But there is value in sending a statement to even your smallest donor to help them know their gift is appreciated, and just to keep in touch.
The donation statement must include the organization’s name, the donor’s name, the date(s) of the donation(s), and the amount(s). It must include an explanation about whether the nonprofit provided any goods or services to the donor for the donation. For example, “You did not receive any goods or services in connection with these donations other than intangible feel-good benefits.”
While annual statements are required, many organizations find sending monthly or quarterly statements can boost giving. This is especially true when they include dynamic content that showcases the value of their mission. Check out this recorded webinar for ideas on how to take stale donor receipts and use them to your advantage.
Saying Thank You
Sure, it seems obvious. But when life gets busy, it’s easy to forget the simple things, like saying thank you. If you want some tips on how to thank your donors, check out these sample thank you letters.
Free Nonprofit Accounting 5-Day Email Course
Want to learn more about the management of your nonprofit’s accounting? Sign up to receive the entire course through email. We’ll discuss how to set up your chart of accounts, daily accounting tasks, and so much more.
If you dread donation management and creating statements for the new fiscal year, you don’t need to wait to finish this course. Start a free trial of Aplos Accounting to get it done faster.