3 Compliance Tips to Power Effective Nonprofit Fundraising

1. Comply with Fundraising Regulations

When you started your nonprofit, you likely completed several registrations and applications with the Internal Revenue Service (IRS). However, fundraising activities are regulated at the state level. This means your nonprofit will have to research its home state (or any other states in which it solicits donations) to know exactly what rules apply.

Relevant state laws include:

• Charitable Solicitations Registration: Most nonprofit professionals are already aware of the need to register before soliciting donations, but processes can become complicated when you fundraise in multiple states—not to mention, you’ll also need to renew your registration every year.
• Regulation of “Games of Chance:” Events such as raffles, casino nights, or even auctions may be considered “games of chance,” meaning the income may be viewed differently than charitable donations. You may need to keep this revenue in a special bank account or pay taxes on any proceeds from these events. Also, if you serve alcohol at such an event, you may have to obtain an alcohol license.
• Tax-Deductibility: Some contributions may not be tax-deductible at all, while others have tax-deductibility stipulations. For example, the winning bid for an auction item is only partially deductible if it exceeds the fair market value (FMV) of the item.

Understanding your state’s fundraising regulations can help your nonprofit narrow its fundraising approach. For example, you may opt for a peer-to-peer fundraising campaign instead of an event like a charity auction to pivot away from tricky revenue rules. As you familiarize yourself with these regulations and implement our legal compliance tips for nonprofit fundraising, you’ll develop a standardized process for raising funds each year.

2. Keep Thorough Donation Records

Different donation types require various fundraising approaches but also require nonprofits to categorize donations differently. Separating your donation records will power your fundraising strategies by allowing you to:

• Budget Future Fundraising Efforts: Thorough records can set reasonable financial expectations for your fundraisers. For example, you might know that your fundraising galas have historically raised $10,000. With this information, you can plan how much you’re willing to spend on the event itself, like venue or catering costs.
• Analyze Successful Fundraising Strategies: Which types of fundraisers tend to be the most successful in meeting your fundraising goals? With detailed donation records, you’ll have better insight into which fundraising strategies work and why.
• Prepare for Tax Filings: Beyond enhancing your fundraising approach, accurate recordkeeping is necessary for your annual filings and federal compliance, as well. You’ll have to report all your financial information and activity details in Form 990 at the end of the fiscal year, so keeping detailed records throughout the year can help you easily and accurately complete this filing.

To ensure your records stay accurate and organized, dedicate the appropriate amount of time to data hygiene practices. Accudata’s guide to data hygiene recommends viewing it as an ongoing process rather than one, mass cleanse. Standardize your data entry and check for entry errors regularly to ensure your data isn’t just hygienic once, but remains clean over time.

3. Practice Financial Transparency

It’s no mystery that accurate financial records are a basic compliance requirement—Foundation Group’s guide to filing Form 990 warns that failing to report your financial activities on time has serious penalties, including a $20 fine for each day the filing is late! But this information (and your compliance in general) also has a huge impact on your nonprofit’s reputation.

When your organization practices financial transparency, existing and prospective supporters will be confident that your nonprofit is truly fulfilling its charitable purpose. That confidence leads to greater engagement, and ultimately, increased support. Use quips of this data in your fundraising marketing materials, such as:

• Your Nonprofit’s Charitable Purpose: Your mission and programs should be evident to everyone who comes in contact with your organization. This will help explain every fundraising initiative and convince supporters to get on board.
• The Goal of the Fundraiser: Explain the need for the fundraiser. What is your nonprofit trying to accomplish and why do you need donors’ money to achieve that goal? Go into detail about the action your nonprofit will take and how it ultimately serves your organization’s charitable purpose.
• The Project’s Financial Need: Provide the dollar amount that is needed to make a difference. List exactly how the donations will be spent and any other information that explains your fundraising goal. That way, supporters will know exactly how their donations support your cause.

By transparently sharing your nonprofit’s activities and the goal of your fundraiser, you’ll gain greater support. As an added bonus, you might attract the support of local corporations. For the benefit of both the community and their corporate social responsibility programs, they’ll be eager to partner with your nonprofit and provide support when and where they can.