Tax Facts for Nonprofits: Some Important IRS Rules to Live By

You probably know how essential it is to thank your donors for their contributions. What you may not know is that a written acknowledgement is actually required by the IRS for any donation of $250 or more. Or that there has been a recent spate of cases in which the IRS denied tax deductions on gifts because the thank you notes did not do enough to establish the donations were purely charitable.

Here's what you need to say: "Our nonprofit is an IRS-qualified 501(c)(3) organization and your contribution is tax-deductible to the extent provided by law. No goods and services were provided in exchange for your gift."

Here are a few more important IRS rules you should know about:

• Compensation: The IRS really notices how much your board and staff are paid. Total compensation packages have to remain within reasonable limits or the IRS can impose serious excise taxes on the individual board members and managers involved.
• Business activities: Nonprofits are prohibited from competing unfairly with for-profits. If you do so, or if you have business activities that are unrelated to your mission, you have to pay the appropriate taxes or face losing your tax-exempt status.
• Lobbying: Direct and indirect intervention as well as participation in political campaigns supporting or opposing a candidate for public office is explicitly prohibited for 501(c)(3) nonprofits. Doing so results in automatic loss of tax-exempt status. You can advocate in support of legislation if it is clearly consistent with your mission, but be sure to proceed cautiously and carefully.
• Governance policies: IRS Form 990 asks whether your organization has adopted a number of specific policies. There is no law that gives the agency any oversight over corporate governance. However, here's what the IRS says: "The absence of appropriate policies can lead to opportunities for excess benefit transaction, inurement, operation for non-exempt purposes, or other activities consistent with exempt status." So it is indeed prudent for your agency to have written policies in regard to conflict of interest, Executive Director compensation, gift acceptance, and documentation of Board meeting minutes.
• Independent contractor versus employee: Many small nonprofits I work with mistakenly try to save money by designating folks who are core staff as independent contractors. Here's the basic IRS guideline: "a worker is your employee if you have the right to control not only what work will be done, but also how the worker will do it." You might get away with this. But if you're caught, the IRS will send you a hefty bill for all the employment taxes you should have been withholding and paying.
• Surplus income: No, you cannot divide up a surplus and distribute it to staff. For-profit businesses get to share profits as they see fit. The beneficiary of a surplus in a nonprofit must be the organization itself - not an individual.

The IRS often gets a bad rap - but I have to say that if you take the time to use their online resources you will actually find them amazingly easy to navigate, comprehensive, and helpful. For more specifics on any of the above, check them out at http://www.irs.gov/pub/irs.

Debunking Seven Misconceptions About Boards

I hear a lot of questions about how best to structure nonprofit boards, along with worries about how to do it the "right" way. Here are seven common misconceptions about boards - and why they are incorrect:

There is one and only one correct model for nonprofit governance.
Fact: One model does not fit all - what your organization needs to further its mission is dependent on your organizational culture, its size and budget, and how long you've been around. And the model you need may change over time, especially in regard to relative responsibilities of board versus staff.

There is one best (and legal) size for a board of directors.
Fact: Actually, California law requires only one director plus two officers (president, secretary, treasurer). This would make you legal but not very functional. Board size typically ranges from 5 to 15; research shows that small boards think they should be bigger, and large boards think they should be smaller. Your board should fit comfortably in your meeting room, be big enough to get work done effectively, and small enough that the group can work cooperatively.

All boards should have numerous standing committees that meet monthly.
Fact: In my experience, only two permanent committees are essential: a Finance Committee charged with ongoing financial oversight and a Governance Committee responsible for the health and functioning of the board. For everything else, consider using ad hoc groups. Your board members and volunteers will feel much more motivated signing up for projects with defined goals and deadlines, rather than for a standing committee with a vague purpose and no end in sight.

A good strategy is to have lots of wealthy people on your board.
Fact: A far better strategy is to have people on your board who are committed to your organization, understand their responsibilities as board members, readily volunteer their time and skills, and not only make substantial gifts (whether that be $50 or $10,000) but also ask their friends to join them in supporting your work.

Another good strategy is to stack your board with folks who have professional expertise you can get for free.
Fact: Often, professional people have valuable skills but very little time. Consider instead asking them to participate on an ad hoc committee, or to be available to provide support via email or phone when you need it.

If things are going well, there's no need for the board to do an Executive Director performance review.
Fact: An annual review can be one of the very best tools to keep your nonprofit in running order, as well as to promote a continuing positive relationship between board and staff. Plus your board has a legal obligation to provide prudent management, which includes oversight of the Executive Director's work. Every nonprofit should schedule an annual performance review on the board calendar, and stick to it.

All boards are dysfunctional.
Fact: Boards are made up of imperfect human beings; sometimes they work well and sometimes they don't. But for every dysfunctional board out there, you'll find many more that are working successfully to provide essential community services.

So stop worrying; instead, be thoughtful, flexible and creative. Assess your board periodically re what functions and what doesn't, and establish a governance structure that truly works for your organization.

Seven Tips for Effective Emails

Email is different from other forms of communication - more casual than letters, more personal than websites, more visual than phone calls, and more frequent and single-focused than all of the above. Here are some tips for using this medium wisely in order to maximize the impact of your emails:

1. Use a catchy subject line: Think of your subject line as a newspaper headline - it should entice folks to read more while clearly conveying your main point. It's both your first impression and your elevator pitch. And it can mean the difference between an opened email and one that gets trashed. Notice and learn from subject lines that work for you (and those that don't). Here are two that grabbed my attention: "Giving back has never looked so good" and "Take two minutes to change the world."
2. Go casual and person: Feel free to use everyday terms, casual sentences and sentence fragments, as well as slang words. Your email should feel relaxed and informal.
3. Keep it short (and simple): Show your readers you appreciate their time by sending emails that are concise and easy to answer. Use as few words as possible, introduce who you are, provide quick context, and tell them why you are contacting them. Be creative, be true to your unique organizational culture, but be brief.
4. Make it mobile-friendly: More and more people are accessing their email on mobile devices only, so test yours out to make sure they work. Short subject lines are absolutely essential, as mobile devices often will only read up to 30 characters (and note that subject lines of 28-39 characters have the highest click rate according to Mail Chimp).
5. Mind your fonts and formatting: Be sure to use common, readable fonts in appropriate sizes - Arial (12 point) and Verdana (10 point) are good choices. Make emails easy to read and quick to scan by using bullets, numbered lists, short paragraphs, and  strategic use of bold and italic. 
6. Use visuals: One great photo, video or infographic is worth a thousand words.
7. Drive readers to your website: You want your readers to one-click to your website to sign up for your email list, donate, and learn more about your good work. So make sure to include the URL for your website and/or blog, and make sure the links are functional.

Email is such a quick and seemingly easy method of communication; we all have a human tendency to toss them off without much thought. But if you want the folks on your email list to actually read what you've written, you need to take the time to compose subject lines and emails that capture their attention and motivate them to take action.