Probably! If your nonprofit hired one or more independent contractor who was paid $600 or more in the previous tax year, then you have to issue a Form 1099 to that independent contractor so they can use it to file their taxes. While some nonprofits who do not hire independent contractors may not need to send out any 1099s, many nonprofits are required to file 1099’s. The deciding factors in whether a nonprofit needs to issue a Form 1099 to someone is whether the nonprofit paid more than $600 to the individual in the previous tax year and if the person is an independent contractor (or an employee, in which case they would receive a w-9 instead).

Few nonprofits operate without some type of paid staff, whether it’s employees or contractors. For many new and small nonprofits, having full-time employees may be costly, and hiring itself is a big risk. While the IRS has clear guidelines on what when someone is an employee vs an independent contractor, it’s not uncommon for nonprofits new and old to hire independent contractors.

Should my nonprofit issue a 1099 or a W-2?

Anyone who does not meet the employee test is an independent contractor. The guidelines for nonprofits around independent contractors and 1099’s are the same as for the private sector: Any independent contractor who is paid more than $600 per year should be issued a Form 1099. Find out more about how to tell if someone is an independent contractor or an employee here.

How to issue a 1099:

1. Collect a completed Form W-9 from your independent contractor(s) with their business type, name, address, and signature. This document provides you the information you need to complete the Form 1099-NEC.
2. Calculate the total amount you paid them for the year.
3. Complete the Form 1099-NEC in and file it with the IRS by January 31st. If filing by paper, include a Form 1096 to transmit the 1099-NEC.
4. Send a copy of the Form 1099-NEC to the Independent Contractor as well. They will use it to file their taxes.

Step 1: Getting a W-9 from an independent contractor

When getting a W-9 remember to start early! You need to issue 1099’s to independent contractors for last year’s payments by January 31st of the following year, so you’ll do everyone a favor by collecting the W-9 in advance. If you know when you start working with a new independent contractor that they will be paid more than $600 this calendar year, then you might as well just collect it when you hire them for the job!

You also need to make sure they actually filled the whole form out. It’s important to have their business type, name, address, and their signature. If they didn’t fill out the whole form you’ll have trouble issuing the 1099 later!

When storing the filled-out W-9, be sure to store it in a secure place as it includes sensitive information, so be sure to store it securely! Some bookkeeping software includes services to manage these forms. Larger, more established nonprofits may use such software, but often newer, smaller nonprofits may manage these files manually.

Step 2: Figuring out how much you paid an independent contractor.

Almost every nonprofit will have a bookkeeper who should be able to answer this question. It’s as simple as adding up all the payments you made to this independent contractor. If you use a bookkeeping program like Quickbooks they are likely entered as a vendor, and you may need to generate a report. Your bookkeeper or accountant should be able to help get this information.

Step 3: Complete and file Form 1099-NEC with the IRS

There are actually many different 1099 forms for different types of payments. While there could be special cases where a nonprofit may need to fill out something other than a 1099-NEC, when dealing with independent contractors you need the 1099-NEC, which stands for “non-employee compensation”.

Where do you find the form 1099-NEC?

You can find the general instructions for paper and electronic filing here. You can find both the e-File links and printable PDF versions here on the IRS Forms, Instructions and Publications Search.

How do you file the 1099-NEC with the IRS?

The IRS recommends that you E-File the 1099-NEC. The IRS has links to the E-Filling page and downloadable PDFs of the 1099-NEC here on the IRS Forms, Instructions and Publications Search.

Step 4: Send a copy of the 1099-NEC to the Independent Contractor

This one’s pretty straightforward: after you have completed the form, there will be a copy of for the independent contractor. Send this to them either in the mail or digitally.

Many people add a password to the digital document or share it via a secure platform. Some bookkeeping tools even manage this for you!

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This year, nonprofits are trying all kinds of fundraising events—virtual, hybrid, and in-person. Since there is a different level of COVID-19 risk in every community, it’s more important than ever to tailor your events to your community of donors’ needs. So, we created a list of fundraising event ideas to help your nonprofit make the most of year-end. 

Year-end is one of the best times of year to gather and share your organization’s mission and impact with your donors. In fact, research shows that 31% of annual giving takes place during the last three months of the year. And, there’s no better time to celebrate your organization’s accomplishments. 

The face of event planning is changing and there is A LOT of room for creativity when planning your year-end event. Events are no longer one-day affairs—your online fundraising event can last several days. You can even pair an online campaign with an in-person event for maximum impact. There are limitless ways to make fun and engaging donor experiences that keep everyone safe. 

Here’s our list of year-end and holiday event ideas for engaging your community in your nonprofit’s work: 

Virtual Event Ideas

Online Ugly Sweater Contest

Ask your supporters to submit photos of themselves in their favorite “ugly” sweaters and hold a vote for the ugliest sweater. The winner(s) get a prize! This is a great way to engage donors on social media. Turn it into a fundraising event by adding a suggested donation during the photo submission or encouraging supporters to host Facebook Fundraisers.

Themed Online Gala

Organizations that pivoted to host their annual galas online actually raise more money than they had in years past. If you want to give your donors an elegant experience, send a high-end gift box to each registrant and host a 30-45 minute virtual program that includes an exciting speaker and a live paddle raise. 

Online Christmas Movie Night 

Pick a Christmas classic (bonus if it relates to your organization’s mission) and encourage your donors to log on and watch the movie with you. Make it extra special by sending participants a movie night box. Give a few ticket levels that add on donation amounts. Hint: this could also be done in person as a drive-in movie night! 

Virtual Holiday Concert

Give your donors a special online experience with a holiday concert! Engage a local artist (or a big name artist) to deliver an intimate living room concert. 

Hybrid Event Ideas

Polar Plunge

Put a new twist on this classic fundraising challenge by inviting your supporters to take videos of themselves doing a “polar plunge” AND hosting an in-person polar plunge. 

Ski-A-Thon

If you’re in a wintry area, encourage supporters to set a goal of how many miles they will ski or snowboard in support of your nonprofit. Participants ask peers to “sponsor” them (think $1 per mile) and then they ski throughout the winter! Participants can submit videos of themselves on the mountain and you can host a community ski day at a local resort to encourage folks to gather and support your nonprofit safely. 

Restaurant Fundraiser

Talk with your local restaurants about offering a dine-in or take-out fundraiser.  If they agree, let your donors choose to dine-in or take out. Encourage them to order with a special code that gives a percentage of the sale to your nonprofit. 

COVID-safe In-Person Event Ideas

Sledding or Ice Skating Event

Sledding and ice skating are both family-friendly activities great for getting people out of the house and involved in your nonprofit. Charge a ticket price and create fun games and contests for donors to participate in. 

Snowman/Snow Fort Contest

Get the whole family involved with a snowman or snow fort contest! Sell entries to the contest and take it online for a vote! 

Holiday Lights Tour

Many local neighborhoods put on a spectacular show of lights. You can partner with them to make it an unforgettable experience for your donors! Host a tour with a low ticket price and suggested donation, and offer hot holiday drinks and information about your impact during the tour. 

With all of these fundraising event ideas, adding the flavor of your organization is what will make them a success. 

While you’re planning the event, be sure to think about how to engage corporate partners as event sponsors and how you are planning on accepting donations. If you’re looking for advice on planning your nonprofit’s end-of-year event, look no further than a free consultation with Linda Akey, Competent Assistance for Nonprofit’s Founder. 

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Did you know that you can likely get a discount on mailings for your nonprofit?  The USPS has special pricing for nonprofit mailings. This means you can cut down costs by 54%-80% on mailing your annual appeal letter, event invitations, and more. However, nonprofits interested in creating an account with the USPS and taking advantage of nonprofit pricing must apply and adhere to guidelines set forth by USPS. 

Eligible Nonprofits

Eight categories of nonprofits are eligible for nonprofit pricing on mailings: 

• Religious
• Educational
• Scientific
• Philanthropic (Charitable)
• Agricultural
• Labor
• Veterans
• Fraternal

To determine eligibility, the USPS examines the following documentation: 

• The organization’s primary purpose
• The organization’s nonprofit status

Applying for Authorization

A nonprofit must apply for authorization at all mailing offices from which it plans to send bulk mailings. The application is called the “Application to Mail at Nonprofit Standard Mail Rates” and required documentation includes your nonprofit’s 510(c)3 letter and proof of its purpose, for example, your by-laws. 

Requirements for Mail Sent at Nonprofit Prices

Mail sent at nonprofit prices looks just like regular USPS Marketing Mail. The only difference is the required marking for nonprofit mail. NONPROFIT ORGANIZATION, NONPROFIT ORG, or NONPROFIT must appear:

• In the imprint indicia – this is for organizations that have an “advance deposit account” who send mostly identical mail pieces, 
• On a nonprofit precanceled stamp, OR
• As part of the meter impression, AND
• Printed on the mailpiece, adjacent to the postage area.

(The option your nonprofit chooses depends on how you choose to pay for your bulk mailings). In addition, the nonprofit’s name and address must be clearly visible, either on the envelope or prominently placed in the contents. And, if a return address is included on the mailpiece, then the name and address must be that of the authorized organization.

There are some requirements for what type of content your mailing can include. The most notable are: 

• No handwritten content, except in specific instances. 
• Stickers, labels, and perforated handouts must not exceed .007 inches in thickness. 
• You cannot send mailings selling a product for a price. 

Bulk Mailings

Nonprofit mail is sorted and prepared the same way as regular USPS Marketing Mail. However, there is a special permit required for bulk mailings, at least 200 pieces or 50 pounds of identical mail. Many organizations use a mailing service that already has a permit and don’t have to apply for their own. However, if you’re processing your bulk mail in-house, your nonprofit will have to apply for a permit. 

How much will it cost?

You can calculate an estimated price of your mailings using the USPS calculator, found here. 

Not sure what to mail? We cover annual appeal letters for nonprofits here. 

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Nonprofits have a unique accounting standard that differs from other types of businesses. Nonprofits have two categories for funds received: 1) funds with donor restrictions, and 2) funds without donor restrictions.

These used to be called unrestricted, temporarily restricted, and permanently restricted funds, but their names recently changed. 

The two categories describe the presence or absence of restrictions imposed by a donor. Only a donor can legally impose restrictions on funds. Donors impose restrictions by creating a condition (either time or purpose) that must be met before the funds can be released. Donors communicate their conditions in the document used to award the funds, often referred to as an “award letter,” and technically known as a “gift instrument.”

If a donor does not pose a restriction, the donation is considered to be funds without donor restrictions. In this case, the nonprofit can use the donation where it is needed most.

How to Manage Funds with Donor Restrictions

Restrictions are conditions such as time and purpose. Time conditions might include a multi-year grant where the funds granted are distributed across a period of three years. Though the nonprofit may receive the full grant in year one, they cannot use the funds for years two and three until the time restriction is lifted. Purpose conditions might include funds intended for one specific program. Under “purpose” a donor can impose a condition that funds should be invested permanently, creating a condition that will never be met (therefore, the funds will always have donor restrictions). An example of this is an endowment. 

Nonprofits should separate income with donor restrictions and without on their balance sheets and P&Ls. When the conditions of the restriction have been met, (the timeframe is right, or the program is happening) funds move from the “with restrictions” column to the “without restrictions” column. Once moved, the nonprofit can use the funds. This allows nonprofits to transparently report funds with and without donor restrictions.

Nonprofits are always legally obligated to meet the conditions of a donor-imposed restriction before spending the funds. That’s why funds without donor restrictions are always the best kind of funding a nonprofit can receive.

Click here for a Donor Intent Spreadsheet to record donations (including non-cash items) received by your nonprofit.

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So much has happened in the last few months.  Fortunately the outcome of certain legislation is for the benefit of nonprofit organizations.  The CARES Act added a special benefit for donors of nonprofit organizations.  For 2020 any taxpayer can donate up to $300 to a 501c3 nonprofit organization and receive a 100% deduction on their taxes.  In the past this was a 50% or 60% deduction and less than 10% of taxpayers would even qualify for a tax deduction for donations. In the past only taxpayers who itemized their taxes could receive the deduction.  Donations over $300 from an individual wouldn’t be eligible a 100% deduction in 2020.

NOTE:  I’m not an accountant.  Taxpayers have differing situations and should consult with an accountant about their tax liabilities and benefits.

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Grants For Nonprofits

Census results means grants from the government to nonprofit organizations for everything from education to the environment, from public transportation to homelessness & from child abuse prevention and beyond.

Being Counted

The Census is mandated by Article 1 Section 2 of the Constitution and has been done every 10 years since 1790. It is a head count of every person from newborn babies to centenarians.  The head count is done where people live (where they live and sleep each day). For example, a college student who lives in a dorm is recorded at their dorm and not their parents home.

The counting begins in Mid March and you will be receiving your invitation to participate in the mail.  You can do the Census online, by phone or by mail. Everyone needs to answer the Census by April 1, 2020.  Anyone who does not respond will be visited later this year by Census takers.

Census takers will be doing headcounts of  those facing homeslessness in the country through a 3 day point in time canvas separate from what states and other agencies do or have done in the recent past to count the homeless.

Privacy

The Census is private.  No personal information is shared with anyone.  Census takers and all Census staff take oath to not share personal information for life or they will go to jail and pay huge fines.  Personal information is not shared with agencies including immigration services (ICE) or law enforcement or even the White House.

To learn more about the Census and making sure EVERYONE IS COUNTED, Click Here

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Nonprofit corporations are most readily identified by the mission and vision of the work they do.  It is true that the charitable work nonprofits do are a requirement for the State and the IRS in determining what defines a nonprofit.  Yet, there are some other very important concepts that legally define a nonprofit corporation. I call these the “five clauses”. They are defined in state law and IRS requirements and necessary for every nonprofit to know and follow. They are, or should be, in your Articles of Incorporation.  They are all written in legal “lawyerly” terminology. I’m not going to share the “legalese” of the actual verbiage here, but you can go to my website to see a copy.  

The “Five Clauses” of a Nonprofit Organization

1.  Charitable Purpose Clause:

   This clause is just as it states.  It means that the organization will act for a charitable purpose defined by the IRS as” relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency. Therefore, the phrase “relief of the poor” in your organizing document properly limits your purpose.”
   It is important that your mission and vision statement follow this requirement and that the board always makes decisions centered around the mission and vision of your organization.

2. Dissolution Clause:
   

   The dissolution clause states that if and/or when the organization comes to end and no longer exists, the assets, cash and property, is dissolved into another 501c3 organization.  The nonprofit volunteers or staff, including the founder or board of directors, cannot take the money for themselves.  The organization can pay out its debts including salaries.  If there is money and property left over, then the board votes on a like nonprofit 501c3 organization to give over these assets. 

3. Limitation on Director Liability:

   Directors serving on nonprofit boards are volunteers and as long as they act in the best interest of the nonprofit, have regular meetings, take and record votes, follow fiduciary policy and generally participate in the governing of the organization, they cannot be personally sued.  There are limits to this. If the board does not meet regularly, take and record votes, keep meeting minutes, allow state and IRS filings to lapse, embezzle money, or specially disregard their duties to the detriment of the nonprofit, they could be individually sued.  Directors need to know their duties and responsibilities and follow them to the best of their ability.  Directors should seek out training and education to be the best board member they can be.  Additionally, nonprofit organizations should purchase Director and Officer Liability Insurance to help cover legal costs.

4. Innurement Clause:
   

   The State and IRS wants to make sure that individuals involved with the nonprofit are not benefiting from the nonprofit.  The nonprofit is not set up to make money for the founder, staff or board of directors of the nonprofit. For example, if a board member has a printing shop, they may offer to do printing for the nonprofit and charge wholesale or less amount to the nonprofit and the board votes to give him the printing work.  This is a form of innurement. The board member is going to benefit from serving on the board knowing that the nonprofit needs printing services even before any other printing companies know and can get the work before another printing company can bid the work. The board should be bidding the work and should avoid any possible innurement where a board member is paid money for services to the nonprofit.  This does not include reasonable reimbursement for expenses related to the serving on the board (travel expenses to board meetings, paper, supplies, printer cartridges, etc.) 

5. Legislative Lobbying:

   The rules differ for 501c3 and other tax exempt status organizations.  For 501c3 organizations, nonprofits are not allowed to give money or endorse or ask their community/supporters to vote for a political candidate (a person running for office). 501c3 organizations are allowed to support and endorse ballot initiatives. They can ask their community/supporters to support and vote for initiatives supportive of the work of the nonprofit.  However, the IRS says such activity must be “insubstantial”. The IRS has started to define “insubstantial” and interpretations say 20% of the total time and money of the nonprofit should be spent on legislative lobbying. 

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The IRS requires 1099s to make sure they are aware of all the work taxpayers are doing. While employers give employees W-2s, independent contractors receive 1099s. These documents allow the IRS to match up income and ensure they are collecting all the taxes owed to the government.

Who?

Nonprofits must give 1099s to any company that is not a corporation and the nonprofit pays at least $600 during the year. Some examples of Independent Contractors are lawyers and law offices, bookkeepers, consultants, photographers, videographers, auctioneers and more.

This is important to understand. In general, the IRS says “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” The factors are behavioral control, financial control,service provided and type of relationship of worker with the nonprofit. Many nonprofits choose to pay their staff as Independent Contractors when the IRS may not label them as an Independent Contractor. Independent Contractors are often self employed, unless it’s a law firm. Independent Contractors have a business that is registered with the state you live in. Independent Contractors pay their own taxes. They can be a sole proprietor, but they are still a business. This means that who the independent contractor is sets the where they work, the hours they work, what equipment they use and more. They often have a contract with the nonprofit.

If the nonprofit sets the hours, work days, requires they use their computers or office, provides resources, etc. then they should be a W-2 employee and you pay their taxes as an employee.

IRS form SS8 gives information on determining whether the person is an employee or employer.

If the nonprofit mis-classifies the worker, there are consequences in payments of taxes for that worker and possible penalties.

What You Need

The Independent Contractor needs to give you a W-9 with their Employer Identification Number (EIN) or Social Security Number (SSN) if they are a sole proprietor and their name, address and type of business as registered. They should give you this information annually because if they moved or had a personal or business name change. Even if they don’t have changes, the form verifies information that is up to date for your records. If they refuse to give you a W-9 and you still want to work with this Independent Contractor, you will need to withhold 24% of their pay and send the 24% amount to the IRS to cover taxes for that Independent Contractor. If they don’t give you a W-9, you probably don’t want to work with them because the business may be suspect.

When

The 1099 Misc are due to the Independent Contract by January 31, 2020 if you are filling in Box 7 on the form, which is the majority of the filings. If you file multiple forms with a 1096, other line items on 1099 or other 1099s the filing date can be extended to February 29, 2020.

Penalties

There are penalties for not filing a 1099 including $530 per 1099 not filed. If the form is not filed incorrectly and is not corrected within 30 days there is another $50 penalty and $100 if they form is not corrected by August.

Electronic filing is a great option for convenience and efficiency and is less expensive than sending in the paper forms.

See the 1099 Instructions on the IRS website.

NOTE: Linda is not an accountant or an attorney. Information provided can be verified with a CPA or tax attorney.

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1. As mentioned, the program/project of a potential nonprofit must fall within the mission of the nonprofit or the nonprofit is specifically set up to be a fiscal sponsor. If the missions don’t align, the nonprofit acting as the fiscal sponsor can run into problems with the IRS and in the community they serve. Fiscal sponsors would need to change their mission statement if the organizations missions don’t align well, but they still want to work together.
   There are many nonprofits throughout the country that do fiscal sponsorship. One of these is Fractured Atlas, which focuses on art projects.
2. The fiscal sponsor’s board of directors is the governing body for the program/project. Although the potential nonprofit program/project may have an advisory board, the final say of the finances and activities are governed by the fiscal sponsor board 501c3 nonprofit. This is because the fiscal sponsor takes on all the risk and it is their tax id number and 501c3 tax exempt status that is being used to accept donations and apply for grants. If the fiscal sponsor wants to change or eliminate the program/project, they have that full right.
3. In line with the risks and responsibilities of the fiscal sponsor, they are required to include the finances, duties and activities of the program/project on their annual Form 990. It is critical that all income and expenses are run through the fiscal sponsor and complete openness and transparency is shared between the manager of the program/project and the fiscal sponsor.
4. A formal legal agreement is highly recommended. This agreement sets the terms and conditions for the organizations to work together. This can address finances, payment schedule for the fiscal sponsorship, board of director and advisory board roles and duties, evaluation and impact of the program/project, use of facilities and other resources of the fiscal sponsor and other aspects pertinent to the organizations working together.
5. Fiscal sponsors charge fees to the potential nonprofit program/project. These fees usually range between 10% and 15% of the organization’s total budget. Fiscal sponsors must use their staff and time to manage the relationship and take on the greatest risk in the relationship.
6. Grant applications are done through the fiscal sponsors tax id number. The fiscal sponsor receives the money and is responsible for ensuring the grants purpose is carried. Some foundations will not give to fiscal sponsors and so you won’t be able to apply for those grants. The fiscal sponsor are the ones recognized for the grant, which does not help the potential nonprofit in getting more grants in the future.

Fiscal sponsorship can be a good start for a potential nonprofit and can help in getting grants. They can help a nonprofit to get the jump start they need, determine if there is a need for the program and ensure a very small nonprofit has the support they need to deliver their program(s). This can be a great way to determine if your idea should become a tax exempt organization one day.

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Guidestar is a nonprofit organization that receives information from the IRS. Guidestar has your nonprofit listed in their database, even if you didn’t do anything to be on their site. They gather data from the IRS and then organize, store and distribute this data for donors, foundations, nonprofit organizations, government agencies and anyone interested in nonprofits to access. Unfortunately, sometimes the information they gather from the 990s is not a fully complete, or even accurate, picture of you nonprofit. If you file the 990N, there really is no information on your nonprofit that depicts your organization in a way millions of people who see it would donate to you.

Furthermore, Guidestar is a necessary resource for giving portals including AmazonSmile, Facebook, JustGive, Network for Good, Salesforce and VolunteerMatch as well most donor advised funds, private foundations and community foundations. They often require your Guidestar profile is current and reflective of your organization. Additionally, you can get donations through your Guidestar profile!

So, Guidestar has set up a process to update your organization’s information. You can make changes to your profile at any time.

1. First you need to claim your profile.
2. Then get approved by Guidestar.
3. After you are approved you can begin updating!

Updating includes providing information on the operations of your organization including your Board of Directors, full descriptions of your programs and even fundraising activities. As you progress through the process, you gain higher levels in the Guidestar process from Bronze to Silver to Gold to Platinum as you meet higher standards of reporting transparency. They require you do updates at least once a year to keep your or improve your status level.

Here’s some links where you can check more on updating your Guidestar:
https://learn.guidestar.org/update-nonprofit-report
https://learn.guidestar.org/hubfs/Docs/2019-GuideStar-Profile-Standard.pdf

One other quick note, Guidestar and the Foundation Center have combined to create Candid. This collaboration provides comprehensive data, research, technology and training for all involved in nonprofit organizations.

https://learn.guidestar.org/news/news-releases/foundation-center-and-guidestar-join-forces-to-become-a-new-nonprofit-entity-named-candid

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