The 5 Types of Donations My Nonprofit Can Accept
Whether you are a startup organization or a well-established nonprofit, you need constant fundraising to pay your overhead and promote your mission. Designing effective fundraising campaigns is all about maximizing the outcome. One way to do this is to target multiple types of contributions.
There are five varieties of donations that your organization can accept: one-time donations, recurring donations, stock donations, planned gifts, and in-kind donations. In the rest of this article, we define each type so that you can secure these invaluable gifts during your next campaign.
- One-Time Donations
- Recurring Donations
- Stock Donations
- Planned Gifts
- In-Kind Donations
- Are Donations Tax-Deductible?
- Is My Organization Eligible To Receive Donations?
- Final Thoughts
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One-time donations are the most common form of donations. They are considered "reactive" because they are not generally planned in advance. In other words, they occur in response to some sort of stimulus. For example, someone may make a one-time donation after seeing a thought-provoking or emotional commercial.
A person can make multiple donations to the same organization. Even then, they are still one-time donations because the person makes no guarantee that they will continue to donate.
Pro Tip: When someone offers a one-time donation, make sure to graciously thank them with a thank you letter or call. This gesture lets them know how much you appreciate their help, which sets the stage for future donations.
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Recurring donations — or funds that a person donates on a regular basis — give your organization the benefit of predictable income. This is useful when it comes to budgeting since you can count on regular donations to fund a project or event.
Oliver loves receiving recurring donations!
As recurring donations take place over time, they give donors the opportunity to provide greater support without requiring a larger lump sum. For example, if a donor wants to donate $1,200 but cannot afford to make such a large expenditure at once, they can divide this larger sum into monthly recurring donations of $100 each. After a year, the person will have donated the $1,200 to your nonprofit.
How To Turn One-Time Donors Into Recurring Donors
Once you have provided a gracious thank you to a one-time donor, keep their contact information. After you have used their money, write them another note to explain how their donation has made a difference to your shared love for the cause. This is the perfect time to also invite them to become a recurring donor.
Your invitation to become a recurring donor should include a few important points:
Explain the process for setting up scheduled donations, including how to use your donation software.
Provide incentives for participating in the recurring program, such as event invitations and gift bags.
Outline your giving tiers so that the donor can find the level that works best for them.
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Though cash and card donations are the easiest to accept, they are not the most stable. One of the more stable types is stocks, bonds, and mutual funds. Some nonprofits shy away from these donations because they believe that the process of accepting this type of support is too complicated.
However, accepting stock donations is far easier than you might believe! For a donor to transfer their stock, you or the donor just need to fill out a transfer authorization form. Once that is complete, the transaction takes place, and the stock now belongs to you.
Setting up a transfer is better for your fundraising strategy. If the donor liquidates the stock and donates that cash to you, they have to pay tax on the gains. With a transfer, you skip the tax, increasing the value of the donation by at least 20%.
What Are the Rules for Accepting Stock Donations?
The IRS requires a receipt for any stock transfer that is greater than $250. Otherwise, keep immaculate records upon receipt of the stock, as it is now part of your organization’s assets. You should record the following:
Stock value upon receipt
Number of shares
Depending on your organization’s policy, you may sell the stock immediately to reap the benefits or hold it to sell at a later date. Whenever you decide to sell the stock, notate:
Date of sale
Number of shares sold
Value of stock at sale
Stocks are an excellent way to boost your bottom line, as many tax-savvy donors prefer to donate stocks. Doing so allows them to avoid paying capital taxes on any gains that the stock has accumulated above its purchase price. The donor saves a substantial amount on taxes, and you gain support for your mission. It is a win/win!
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While one-time gifts are reactive in nature, planned giving is reflective. This means that the donors plan these gifts as a well-thought-out offering of their support. Often called legacy giving, this form of donating generally takes place through a bequest in the donor’s will. It allows a person to continue to make a difference even after they are gone. Donors can also make nonprofits the beneficiaries to life insurance policies and retirement plans.
Emily is loving learning about the different types of nonprofit donations!
Like with stock donations, giving planned gifts is also a simple process. All the donor has to do is make a short provision in their will that grants either a lump sum or a percentage of their estate or assets to your cause. They can make changes to their will any time they wish — to add, modify, or remove a provision — so they are always in complete control of their planned gift.
What Happens if a Planned Gift Falls Through?
From time to time, your foundation may receive restricted legacy gifts, meaning that the donor wishes for their assets to be used in a specific way. Even if given in good faith, sometimes that gift may violate your nonprofit’s policies regarding gift acceptance. If so, you should politely refuse that donation. As much as you may need those funds, you do not want to violate your integrity by accepting them when you cannot use them properly.
Another common obstacle is when the beneficiaries of a will make attempts to prevent you from getting the gift. When this happens, you may need to fight to fulfill the desires of the deceased. This is where legal advice can be invaluable.
Pro Tip: Encourage legacy donor prospects to choose a specific percentage as opposed to a lump sum. This generally proves more advantageous for both your organization and the donor. For example, if they overestimate their future financial situation, the lump sum that they propose could be too much of what they have left, meaning that they cannot take care of their loved ones as much as they would want to.
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Much like stocks, bonds, and mutual funds, some donations come from non-monetary sources. In-kind donations are another example of this. They can take many forms, including:
In-kind donations help your organization meet its goals without spending more. For example, maybe you have a quarterly fundraising goal to host a fundraising event. If you need a venue for this event, maybe a winery can donate their space to you for free. That saves you the cost of renting another space for thousands of dollars.
This type of donating also benefits the donor. Maybe they want to be able to make a difference, but they do not have monetary assets to spare.
Pro Tip: You still need to report your in-kind donations on your Form 990. These donations belong in one of three categories for reporting purposes: service donations, use of property, and tangible/intangible goods.
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Are Donations Tax-Deductible?
Some types of donations are tax-deductible, and others are not. At the very least, you need to be a tax-exempt organization for any donations that you receive to potentially be tax-deductible.
Anthony is thinking on which of the donations his nonprofit has received are tax-deductible.
Below, we discuss whether the five types of donations from earlier are tax-deductible for donors or not:
One-time donations: These types of donations are tax-deductible. Most people can deduct up to 60% of their adjusted gross income for donations to qualifying charities.
Recurring donations: The same is true for recurring donations as is true for one-time donations.
Stock donations: Donors can deduct donated stock. In fact, when they donate stock, they are eligible to deduct 100% of the full fair market value from their income taxes.
Planned gifts: Planned gifts are tax-deductible, but the deduction depends on many factors, such as whether the donor is still living and what type of gift it is.
In-kind donations: Only some in-kind donations are tax-deductible. For a qualifying in-kind donation, the donor needs to receive a written acknowledgement of the donation from the nonprofit.
Pro Tip: Tax deduction is a complicated topic. We only went over the high-level points above. For more details, visit IRS.gov. The site has page after page of information on donations from the beneficiary’s side in addition to the contributor’s side.
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Is My Organization Eligible To Receive Donations?
Any corporation can accept charitable donations, but not all corporations have tax-exempt status. If you do not have tax-exempt status, then your supporters cannot claim tax deductions.
To receive tax-exempt status from the IRS, you must fill out a Form 1023 application. The process includes:
Choosing either Form 1023 or Form 1023-EZ
Compiling the proper documentation, including your bylaws and financial statements
Completing and submitting the form
Paying the filing fee
Most individuals only donate to veterans organizations, public charities, domestic fraternal societies, civic leagues, private foundations, and other types of nonprofits if their donations are tax-deductible. Therefore, it is in your best interest to pursue tax-exempt status to maximize your fundraising.
Pro Tip: Drafting an effective fundraising plan that incorporates these types of donations is no easy feat. If you are new to fundraising, we recommend hiring a fundraising consulting firm. If that is not in your budget, at the very least, you can dig into the most successful nonprofit fundraisers to get some ideas on the types of fundraising to target.
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Your nonprofit can accept many types of donations. The more open you are to this idea, the more funding you will receive. And, having more funding is your answer to growing your organization and pursuing your mission.
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💡Is my organization eligible for donations?
Yes. Any organization is eligible to accept donations. However, donors are more likely to donate to tax-exempt organizations so that they can get tax deductions. Find out more.
🔑 What is a planned gift?
A planned gift usually comes from a will, where someone gives you a lump sum of money or a percentage of their assets upon their death. Find out more.
📝 How do I get more recurring donors?
Establish a program to encourage one-time donors to become recurring donors. This plan includes a thank you for every one-time donation. Continue the contact by describing how their donation made a difference and offering incentives for scheduling recurring ones. Find out more.