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Budgeting isn’t just a spreadsheet. It’s a strategic tool that reveals whether your nonprofit is truly aligned with its mission.
This blog breaks down how to move beyond static budgets and start using them as a roadmap for decision-making, clarity, and impact. If your budget isn’t guiding your organization, it’s time to rethink how you’re using it.
Nonprofits often get stuck in a cycle of reactive fundraising, constantly chasing the next grant or campaign. Learn how shifting from survival mode to clarity and impact can help your organization build sustainable funding.
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501(c)(3) donation rules are crucial for any nonprofit organization to understand. Donations are the lifeline of any nonprofit organization. While some nonprofits depend more on government contracts or foundations, many rely on donations from individuals as their primary funding source. One essential tool that you can use in your nonprofit is donation tracking software that can help you keep track of incoming gifts. Software helps ensure transparency and accuracy in keeping financial records and tracking restricted funds, crucial in maintaining your nonprofit. In this guide, you’ll learn the rules nonprofits must follow when accepting and accounting for donations.
Most nonprofits have tax-exempt status with the Internal Revenue Service (IRS), which means their revenues, gross receipts, or income are exempt from the federal income tax rate. Tax-exempt status allows you to use your money to fulfill your mission instead of giving a significant chunk to the IRS as for-profit businesses must do. The tax-exempt status can benefit charities, churches and religious organizations, schools, educational organizations, social welfare organizations, civic leagues, social clubs, labor organizations, business leagues, and political organizations. 
501(c)(3) nonprofits are a specific class of nonprofit organizations recognized by the IRS, including most charitable organizations and churches. Donations to 501(c))3) nonprofit organizations are tax-deductible. Individuals can deduct up to 100% of their income in qualified donations. Corporations are limited to a deduction equal to 25% of their taxable business income. Large corporations actively seek the tax deduction, so they often will not give money to organizations that do not have a legitimate 501(c)3 status. Donating to a nonprofit with the correct tax exemption status also helps ensure your money will be put to good use, as 501(c)3 organizations are held accountable to legal standards enforced by the federal government.
A nonprofit organization doesn’t need to have a 501(c)3 designation to accept donations. But, as a donor, if you donate to an organization that doesn’t have the correct designation, you cannot claim the tax deduction when you file your tax return. Nonprofits without the correct designation will often turn to crowdfund sources or GoFundMe programs to collect donations. PRO TIP: If you donate to an organization that has applied for tax-exempt status but has not yet received a letter of determination from the IRS, your donation will be exempt from taxes only if their application is eventually approved. 
One of the restrictions placed on 501(c)3’s is that they cannot use funds for political lobbying purposes. Political nonprofits exist, but they fall under the 501(c)4 designation instead with specific tax exemptions and a different way of handling political contributions. A donation to any of the following is NOT tax-deductible according to the IRS:
Yes, donors can place restrictions on how a nonprofit may use its funds. Nonprofits are required to adhere to these donor requests by creating accounts to track restricted funds separately from other funds and reporting restricted fund balances on their financial statements.
Yes, you can. It’s quite common for nonprofits to support other nonprofit organizations, especially if they share a common mission or serve the same community. Before donating, you should do your due diligence and ensure that the nonprofit you are giving money to is reliable and worthy of your funding– this could help you prevent potential damage to your reputation if that organization isn’t using their funding appropriately.
Yes, 501(c)3 nonprofits can gift money to individuals, provided the individual falls under the primary demographic the nonprofit assists and the donation falls within your organization’s mission as declared to the IRS. 
Getting more donations is vital in raising funds to keep your nonprofit going. Because of this, nonprofits are getting creative with fundraising events to entice more sponsors and donors. Here are some of the different trips on how you can increase donations to your nonprofits:
Nonprofits love to partner with other nonprofits to multiply resources and help accomplish a common goal. Search for nonprofits that cater to the same audience as you and propose hosting joint events or fundraising ventures. By partnering with other nonprofits, you are dividing the responsibilities, and both organizations can help achieve their goals which creates a win-win for both.
Because of the COVID pandemic, most in-person events transitioned to virtual events. The good news is that virtual events are cost-effective and can reach a much wider audience. Just because you are holding a virtual event doesn’t mean that you can’t be creative and have fun with it!.
Social media is a quick and easy way to reach your audience and bring awareness to your cause. It’s an instant way to reach thousands (or millions!) of people. And thanks to easy online payment options, people don’t even have to leave their phones to send money! When posting to social media, be sure to always include a call-to-action. Don’t be afraid to ask for donations, and provide easy options for them to pay you now, like text-to-donate services or Live Donations through Instagram .
At some point, every nonprofit organization needs someone to turn to for answers. But too often, there’s nobody there. The rules for nonprofit bookkeeping and accounting are complex and confusing. So having an expert financial partner on your side can help you sleep better at night and keep your organization out of trouble. The Charity CFO provides full-service bookkeeping and accounting services for over 100 nonprofit organizations in the USA. We’re experts on everything from time-saving bookkeeping software to financial reports and audits. We also offer a free library of on-demand webinars and downloadable templates so you have practical tools to put to work right away.
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For some nonprofit leaders, it can be easy to spend too much time poring over each and every category of nonprofit expenses
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If you know only one thing about 501(c)(3) nonprofit organizations, you probably know that they don’t pay federal taxes on their income.
But what if I told you that’s not always true?
It’s true that due to their uniquely valuable societal contributions, such as charitable actions or educational priorities, nonprofits receive tax exemption for income from activities substantially related to their primary purpose.
However, as detailed in Publication 598 of the Internal Revenue Service, income not directly related to their declared charitable purpose is subject to federal taxation. This is called the unrelated business income tax, or UBIT.
So how do you know if your nonprofit organization has taxable unrelated business income?
We’ll review the core principles of unrelated business income tax (UBIT) rules below, along with examples of income subject to taxation, to help you understand what it is and whether or not it applies to your organization.
Both federal tax exemption and the eligibility to receive tax-deductible contributions help your nonprofit achieve its charitable goals. But while these benefits have a positive impact on society, they can pose a temptation for some organizations looking to take financial advantage for personal gain.
As a result, Congress implemented the UBIT in 1950 to eliminate the unfair advantage tax exemption gave to nonprofits competing against for-profit entities in the same sector. The tax limits the advantage of nonprofits to their specified charitable purpose and prevents them from exploiting their benefits in the commercial sector.
For example, the UBIT prevents an entity such as a church from using its exempt status to open a store purely for profit with no charitable purpose. This is true even if the church uses those funds to fund programs in the community.
It is not, however, prohibited for your exempt organization to earn unrelated business income. If you receive gross income from an unrelated business reaching $1,000 or more, you simply need to complete and submit IRS Form 990-T and pay the required taxes.
If your organization expects it will need to pay $500 or more in tax for the year, then you must pay a quarterly estimated tax. The Form 990-W helps determine the required amount of estimated tax to pay.
Form 990-T and Form 990-W are in addition to your organization’s annual information return (Form 990, Form 990-EZ, or Form 990-PF).
UBIT rules apply to most organizations that gain tax exemption from section 501(a) of the Internal Revenue Code (IRC). The three main criteria for your tax-exempt entity’s activity to be considered an unrelated business are as follows:
Most tax-exempt organizations must follow the UBIT requirements, including those in social welfare, advocacy, trade, veteran groups, labor organizations, and employee benefits.
However, some special cases fall under modifications, exclusions, or exceptions to unrelated business income, such as:
✔️ Volunteer labor
✔️ Convenience of members
✔️ Sale of donated merchandise or in-kind gifts
✔️ Corporations organized under Acts of Congress and are instrumentalities of the United States
✔️ Some charitable trusts not subject to private foundation taxes
✔️ Dividends
✔️ Interest
✔️ Certain investment income
✔️ Royalties
✔️ Certain rental income
✔️ Certain research activity income
✔️ Gains or losses from property disposition
✔️ Certain bingo games
It can get a bit complicated, but the Form 990-T Instructions give you more specifics on what constitutes an exception and what does not.
Although nonprofits can earn profits from unrelated business activities, these profits can only make up a certain percentage of the nonprofit’s overall income.
This limit is not clearly defined, however. Instead, it is up to the IRS to determine if your percentage of total income coming from UBI is too high. In cases where the IRS is evaluating unrelated business income to determine adequacy, it considers various factors specific to the situation at hand.
Related business income: If an organization sells food and beverages to its members, it would be considered part of the entity’s regular operations to further its purpose. The money earned goes towards paying back the expenses used to obtain the food for its members to work on their mission.
Unrelated business income: If the same organization sells food to non-members regularly to make additional profits without working towards its non-exempt purpose, then the income is unrelated and taxable.
Related business income: If an organization has a parking lot and it charges members to use during working hours, then this income is not taxable. The money earned goes toward paying the lot lease and provides a service to members who use their parked time for furthering the purpose of the organization.
Unrelated business income: However, if the entity decides to take advantage of its non-working hours by regularly opening the lot to non-members to turn a profit, then this income is subject to the UBIT. The money is no longer from and for members and is not necessary for furthering the organization’s purpose.
Related business income: Consider an organization such as a church that charges admission for a small fair or arcade in which themed games and activities educate the children of members on the church’s views and purpose. This activity specific to members and to the purpose of the church would not fall under UBIT rules.
Unrelated business income: If the same church ran a general arcade next door open to the public and with no educational aspect, then the resulting income would be subject to the UBIT.
Other forms of income which would be susceptible to the UBIT include proceeds from the liquidation of assets, the sale of resources found on the property of the exempt entity, income from paid advertising in the organization’s newsletter or publications, or the sale of unrelated merchandise to the public.
Each of these examples and those described above involve various factors that, if changed, could change the exempt status of the activity in question.
You should always consult your legal counsel or a qualified accounting professional before making decisions that could cost you a lot of money down the road.
But as a nonprofit, sometimes it’s not easy to find someone to answer your questions. We frequently hear stories of CPAs that don’t return their nonprofit clients’ phone calls or emails. Often, nonprofits get stuffed at the bottom of the pile.
If you’re tired of being the last priority of the financial professionals in your life, consider outsourcing your bookkeeping and accounting to The Charity CFO. We’ll modernize and optimize your accounting system to get you audit-ready financial reports every month.
And our team of former nonprofit CFOs and auditors are available to answer all your most challenging questions about tax liabilities, transparency, compliance, budgeting, and more.
Reach out to us today to see if outsourcing your bookkeeping and accounting can save you time, money, and stress.
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