E&F Advice & Administration
May 22, 2023
Importance of Year-End Planning for Nonprofits
Whether your organization’s fiscal year-end is June 30, December 31 or any month, it may be your busiest time of the year. But with board meetings, strategic planning and other responsibilities, making time to plan for year-end can be difficult. With a seemingly unending list of action items to address — from fundraisers to tax forms — we provide some objectives to consider.
Evaluate the Budget
Inflation has had a profound impact on the nonprofit sector in the past couple of years. Even nonprofits that are fundraising at the same rate as they did in previous years may be losing purchasing power. The cost of doing business is increasing, and many nonprofits are challenged to raise more funds just to stay afloat.
Typically, fourth quarter of the fiscal year is a critical time to evaluate the existing budget and make adjustments to the new budget so that it can be approved by your board. Reviewing last year’s budget will help you assess where the money went and where it needs to go, and determine where you may be able to cut costs, if necessary. It is also an opportunity to identify where you have succeeded in furthering your mission — and where you fell short. This should help set a baseline for the next budget.
Prepare for End-of-Year Giving Surge
Your organization may receive a significant amount of donations as the end of the year approaches, a time when many donors are looking to minimize their taxable income. Do you have adequate staff and processes in place to receive all types of donations, including marketable securities and qualified distributions from IRAs? Is your website up to date, and are all online giving forms accessible and working properly?
For some donors, there can be significant tax benefits to giving assets other than cash. Individuals who donate highly appreciated securities directly to a charity may avoid realizing the built-in capital gain and be able to take a charitable deduction for the amount donated. Gifts of appreciated securities and other assets held for at least one year by the donor generally qualify for an income tax deduction based on the asset’s fair market value. But gifts of stock could present a paperwork and staffing challenge as donors will need acknowledgment letters for tax purposes. Donors are more likely to follow through on stock or cash gifts if instructions are clear and easily accessible. Working with your investment advisor to make sure you have the right process in place ahead of time will allow you to respond in an agile fashion when year-end giving ramps up. The IRS requires that all 501(c) nonprofits send letters to donors acknowledging donations of $250 and more. An efficient practice would be to send donor acknowledgment letters throughout the year so as not to have this task on your plate at year-end.
Review Financial Records
Your financial records should be complete, up to date and accurate. Year-end is a good time to reconcile accounts and gather information for tax returns. Most nonprofit organizations that are recognized by the IRS as tax-exempt must file IRS Form 990 within 5 months and 15 days after the close of the nonprofit’s fiscal year. The version of Form 990 you must file depends on your nonprofit’s annual revenue and assets in its most recent fiscal year.1
Set Goals for Next Fiscal Year
Assess the goals from the prior year: Were they all accomplished? Did you identify opportunities that could carry into the next year? How can the experiences and performance of the previous year inform your strategy and goals for the upcoming year? Setting goals should be part of a nonprofit’s strategic plan — the blueprint for accomplishing the organization’s goals and objectives for the year.
Much of a nonprofit’s strategic planning centers on donor engagement. Is the organization planning a new donor campaign? A capital campaign for a new building? Be cognizant of initiatives that may increase staffing needs that will need to be included in the budget.
Prepare Your Annual Report
An annual report takes considerable time to complete, from compiling information and financials to formatting and distribution, so get an early start. This is an opportunity to tell your organization’s story, to share with your donors and others your accomplishments, to thank donors and perhaps cultivate new supporters. The financial component of the annual report is of utmost importance, as it provides your organization’s annual income, expenditures, funding sources and more.
Assess Your Board’s Composition
Is your board of directors providing effective direction for your organization? Are all board members still a good fit for your organization and passionate about its mission? Year-end could be an opportune time to make changes to your board. Are there upcoming needs where having a new board member with legal, real estate, nonprofit management or other expertise would be helpful?
Even the best-laid plans can go awry. Have a plan in place for dealing with any unexpected challenges that may arise as you approach year-end.
What Your Advisor Can Do
Year-end is a critical time to communicate with your investment advisor, who could play an instrumental role in everything from donor engagement to tax planning. Glenmede is an active partner for its nonprofit clients at year-end, working with clients receiving donations of stock and generating the IRS-required acknowledgment letters. From a portfolio management perspective, we participate in strategic planning. Clients also lean on Glenmede for financial reporting.
For more information on how Glenmede can help your nonprofit with year-end planning, please contact your Relationship Manager or email Glenmede’s Endowment & Foundation Relationship Management Team at EFSolutions@glenmede.com.
1 Federal Filing Requirements for Nonprofits. National Council of Nonprofits. https://www.councilofnonprofits.org/tools-resources/federal-filing-requirements-nonprofits#:~:text=Most%20charitable%20nonprofits%20that%20are,of%20the%20nonprofit’s%20fiscal%20year (accessed October 5, 2022).
This material provides information of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. Any opinions, recommendations, expectations and/or projections expressed herein may change after the date of publication. Information obtained from third-party sources is assumed to be reliable but may not be independently verified, and the accuracy thereof is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss any matter discussed herein with their tax advisor, attorney or Glenmede Relationship Manager.