You may need donations to run your nonprofit, but how can you use them? This article will serve as a thorough guide to nonprofit donations and show you what kinds of expenses donations can—and cannot—be used to cover.
How Can a Nonprofit Use Donations?
When people donate money or goods to a nonprofit, they’ll want to know that their donation is going toward a good cause. It’s important to be transparent about where the donation money will be going and how it will be used. This way, donors can trust that their money is going to a worthy cause.
However, nonprofits do have restrictions on how they can utilize donations. These restrictions depend on the type of donation and any expenses the nonprofit holds.
Restricted vs Unrestricted Donations
Some donations are restricted for a particular use. Restricted donations are given to a nonprofit with the donor specifying how the donation is to be used. The nonprofit can only use the donation for a specified purpose. For example, if someone donated $500 to your animal rescue nonprofit with the intent that it be used specifically for food, then you would only be able to use that $500 for food and not for anything else.
Unrestricted donations are just the opposite; the donor does not specify how the donation is to be used. The nonprofit can use these donations as they see fit to further their cause.
Solicited vs Unsolicited Donations
Solicited donations are donations that are requested by the nonprofit. This can be done through donation requests, donation websites, or crowdfunding campaigns. These are often solicited for a specific reason, which means that the donation must go to that particular cause. For example, if you’re running a campaign to raise money for a new animal shelter, then the solicited donations will go toward building the new shelter.
Unsolicited donations are those that are not requested by the nonprofit. These can come in the form of unsolicited gifts or bequests. While it may be tempting to use these donations for other purposes, it’s important to be mindful of the donor’s intent. If the donor has given you an unsolicited donation with the intention that it be used for a specific purpose, then you must use it for that purpose.
Expenses That Can Be Covered By Donations
So, if the donations are solicited or restricted, then they must be used toward particular programs and services. However, nonprofits often get donations that are unrestricted. These unrestricted donations can be used to cover a wide range of expenses, which we’ll go over in more detail in the following.
-Programs and Services: This is the main use for unrestricted donations. The donation money can be used to fund programs and services that further the nonprofit’s cause. For example, if you’re running a literacy non-profit, you could use donations to fund a reading program for children.
-Operational Expenses: Nonprofits also have to cover their own expenses in order to keep running. This can include things like rent, utilities, office supplies, and salaries.
-Overhead Expenses: In addition to operational expenses, nonprofits also have to pay for things like insurance and taxes.
-Marketing and Advertising: Nonprofits need to market themselves in order to reach more people and raise awareness for their cause. This can include things like designing a website, printing marketing materials or paying for ad space.
-Grant Writing: Many nonprofits rely on grants to help them fund their programs and services. However, grant writing can be a time-consuming and expensive process. Donation money can be used to hire a grant writer or pay for the associated expenses.
What are the Limitations on the Use of Donations?
There are some expenses that donations cannot be used for, no matter what type of donation it is.
-Personal Expenses: This is a big one. Donation money cannot be used for personal expenses, no exceptions allowed. This includes things like vacations, cars, houses, and clothes.
-Lobbying: Nonprofits are not allowed to use their donations to lobby for or against political candidates.
-Political Campaigns: Nonprofits are also not allowed to use their donations to support or oppose political campaigns.
How To Write a Donation Request Letter
If you’re running a nonprofit, chances are you’ll need to write a donation request letter at some point. These letters are important because they allow you to reach out to potential donors and explain why their donation is important.
When writing a donation request letter, there are a few things you’ll need to keep in mind.
-Keep it short and to the point: Potential donors are busy people, so you’ll want to make sure your letter is short and concise. Get straight to the point and explain why you’re writing.
-Emphasize why the donation is important: In order to convince someone to donate, you’ll need to explain why their donation is important. What will the donation be used for? How will it make a difference?
-Explain what the nonprofit does: Many people are reluctant to donate to organizations that aren’t familiar to them. Include a brief explanation of what your nonprofit does and how it helps the community.
-If your nonprofit is a 501(c)3 organization, be sure to include this in your letter. It means the donor can write-off the donation on their personal income tax return.
-Include a call-to-action: Be sure to include a call-to-action at the end of your letter. Share with the potential donor what you want them to do, whether it’s donating money, volunteering their time, or spreading the word about your organization.
-Say “Thank you.” Don’t forget to say “thank you!” Even if the person doesn’t donate, they’ve taken the time to read your letter; so be sure to express your appreciation.
Sample Template Of a Donation Request Letter
Dear potential donor,
I am writing to (explain why you are writing). We are a (explain what your non-profit does) nonprofit organization that is dedicated to (explain your cause).
(Make a case for why the donation is important. What will the donation be used for? How will it make a difference?)
For example, our organization provides (explain what your non-profit does) to underprivileged children in the community.
(Include a call-to-action. What do you want the potential donor to do?) We are asking for a donation of $ (amount of money).
Any amount would be appreciated and would go toward (explain how the donation will be used). As a 501(c)3 nonprofit organization, all donations you give to our efforts will be tax deductible.
Thank you for your time,
How To Create A Donation Form
It’s also a good idea to create donation forms. These are simple documents that potential donors can fill out when they want to make a donation. This will include basic information about the donor, as well as the amount of money being donated.
Example Template Of A Donation Form
Phone Number: _______________________________________________
Email Address: _______________________________________________
Amount Donated: $_________________________________________
Thank you for your donation!
How To Create A Donation Receipt
And, finally, once your donor donates to your nonprofit, you’ll need to send them a donation receipt. This is an important document for tax purposes, as it will allow the donor to deduct their donation on their taxes. The receipt should include the following information:
-The name and address of the nonprofit organization
-The date of the donation
-The amount of the donation
-A statement that the donation is tax deductible
-The signature of an authorized representative of the nonprofit
Sample Template Of a Donation Receipt
Thank you so much for your generous donation of $ (amount) to our organization. Your donation will be used to (explain how the donation will be used).
This receipt serves as documentation that we are a 501(c)3 organization and, as such, your donation is tax deductible.
-Date of Donation: ___________________________________________
-Amount of Donation: $_________________________________________
Thank you again for your support!
As you can see, nonprofits have some restrictions on how they can use donations. However, as long as the donation is used for a legitimate purpose, it can be incredibly helpful to the organization. And, remember, always send a thank you letter and receipt to your donors!