The end of the year is often the busiest time for nonprofit organizations. In addition to preparing their year-end fundraising campaigns and providing supporters with the information they need to make an impact, nonprofits have to get their finances in order.
There are several bookkeeping and accounting deadlines that conclude with the calendar year, which can be difficult to keep track of. In this guide, we’ll make sure you’re prepared by providing a comprehensive nonprofit year-end checklist.
1. Gather information for 1099s
The Form 1099 is similar to the W2 that you provide to employees, but it’s meant for your organization’s contractors. While you technically won’t need to send these forms until January 31, you should have the necessary information before the start of the new year.
These are the four conditions that must be met for a vendor or contractor to require a 1099 form:
- Your nonprofit made a payment to someone who is not your employee.
- The payment was made for a service to help your nonprofit organization.
- Your nonprofit made the payment to an individual, partner, vendor, or estate.
- The payment amounted to at least $600 during the year.
Once you identify who will need to be issued this form, make sure you have their correct mailing address, name, social security number, and other information they submit on a W-9. You’ll also need to pull the payment category, account number, and tax withholding information for each vendor.
2. Send any necessary donor acknowledgment letters
When a donor gives $250 or more in one calendar year, your organization is required to send a donor acknowledgment letter by the year’s end. These letters are essential for your donors to claim tax deductions for the gifts they contribute to your organization. Therefore, the IRS requires each gift acknowledgment letter to include:
- Your donor’s name.
- The legal name and EIN of your nonprofit.
- A statement regarding your organization’s 501(c)(3) status.
- The date you received the donation.
- The amount donated to your organization.
If applicable, you may also need to include:
- A statement that your nonprofit didn’t provide goods or services in exchange for the gift.
- A description and good faith estimate of in-kind contributions made to your organization.
- A statement that any goods or services provided by your organization in exchange for the donation were intangible religious benefits.
Keep in mind that it’s common for gifts exceeding $250 to come in during your year-end giving season, considering nonprofits receive 30% of annual donations during the final quarter of the calendar year. Immediately following the year-end giving season, identify donors who have contributed over $250 (or who gave more than one donation) to send the required communications before January 31.
3. Record any in-kind donations
As part of the generally accepted accounting principles (GAAP) and to ensure accurate annual tax forms, your nonprofit needs to record in-kind donations made to your organization. To do so, determine the value of each in-kind donation contributed.
If it’s a tangible item with the tags still on it, you can assume the value will match the tags. If the actual price is not available, you could research what price you could get for the item on the open market. However, if it’s used, you should determine the depreciation of the item when you value it. When the item is donated, you can also ask the donor to complete a form listing the details of the items given and their estimated market value.
Services can be some of the most challenging in-kind donations to assign value. You could estimate what you would typically pay for such services, or ask the donor what they would typically charge. However, these two numbers might not be the same.
Let’s take a look at an example of how to assign monetary value to in-kind services. For your upcoming auction, an event planner offered their services to help prepare for the event. Consider the fair market value of the event planner’s work per hour, then calculate the number of hours they worked with your organization to determine the value of their services.
Knowing how to put an accurate value on in-kind donations can help you maintain your records throughout the year. Then, when the end of the year rolls around, you can ensure all in-kind donations are accounted for, so you can accurately report them and avoid any complications.
4. Remind staff to update their contact information
Just as your organization needs to submit your annual tax reports at the beginning of the new year, your staff members must pay their taxes. Well before this deadline, ensure you have all the information you need to send W-2s to your staff members.
Remind your staff to update their contact information before the year ends so that they can receive this important tax document.
If you use an HR payroll system for employee compensation, this is where you’ll need to check that their contact information is correct. Remind them to confirm their email and physical mailing address before the end of the year, preferably before the giving season ramps up.
5. Report any necessary grant information
In addition to raising money from individuals, many organizations rely heavily on grants for their fundraising efforts. This is why it’s important to set up a system to manage your grants and grant deadlines.
Often, grantors use the calendar year for their reporting deadlines, requiring your organization to report the use of your grants by the end of the year. This may not always be the case, but it’s worth checking your own grant requirements to be sure you’ll meet the deadlines they set.
To make sure you’re reporting everything accurately and on time, take the following steps:
- Determine if each grant is unconditional, has contingencies, or is reimbursable. Then, record the funds accordingly.
- Set up reminders before your deadlines so you have time to gather all the necessary information about your use of the grants.
- Prepare grant reports and make any final adjustments well before the deadline to save time during year-end activities.
Get started as soon as possible to facilitate the process of pulling grant reports alongside holiday planning and year-end fundraising campaigns
A final note about the nonprofit year-end checklist
Remember to prepare and regularly update your accounting activities throughout the year to avoid scrambling during the month of December. With proper planning and a nonprofit year-end checklist to guide your efforts, your organization will meet every deadline.
