Raising Money for Your Nonprofit
A nonprofit organization cannot operate like a profit-making business; it is limited in the types of profit-making operations it may run. However, it has other methods to make money that are not open to profit-making companies.
Applying for Grants
A nonprofit corporation can qualify for grants from both private foundations and government agencies. There are thousands of grants available through various programs, some of which are not claimed by anyone. If you do some research, you may qualify for the fund you need to run your programs.
However, getting a grant is not always easy. If you do not answer the questions correctly or provide the required documentation, you will not get the grant. Writing grant applications has become a profession in itself-as a career, some people compile the information needed for organizations to qualify for grants.
As a new organization, you probably will not want to start using expensive grant-writing services. It will be a good educational experience for you to make some grant applications to learn the process. Grant applications are like tax returns, in that you can better use the services of a professional when you have done it yourself and know what kind of information is needed.
A nonprofit can also earn extra income by endorsing certain products to its members, such as car rental companies or long-distance carriers, and can earn a percentage of the income generated. Some groups sponsor their own credit cards, with the symbols of their organization appearing on the card.
Such arrangements can either be unrelated business taxable income or exempt royalty income, depending on how the deal is structured. If it is a passive arrangement in which the group receives a royalty for use of its logo, the income is not taxable. If the members of the group must materially participate, such as by promoting the products, the income is then taxable.
Income received from corporations for sponsoring events run by nonprofit corporations may or may not be taxable, depending on whether the corporate sponsor is promoted or merely identified at the event. Displaying a brand, logo, or name of a sponsor; listing products or services; or, giving addresses or phone numbers is considered identification. However, promoting products, giving prices or discounts, and suggesting people buy the products are considered promotions, and any money received for them is taxable.
One source of funding for many nonprofits is gifts people leave in their wills, which are called bequests. Of course, this is something that does not produce immediate income, but rather something that must be developed over the years to provide funding in the future.
The simplest way to promote such gifts is to include in your fundraising materials a plea to "remember us in your will” and be sure to list the exact legal name of your organization. If someone leaves a bequest to a name that is not exactly your organization's name, another organization might claim it or the family might contest it as being too vague.
Larger organizations devote considerable resources to courting bequests, and have employees who can sit down with potential donors to plan for the gift. Sometimes large donors may want to have a program or building named after them.
An endowment is a fund that is built up so that the income can be used for expenses. Some grants and bequests you receive might be required to be part of an endowment. If so, you need to set up an investment account to hold your endowments. If there is not enough to provide much current income, you might want to let it build up for several years.
Besides the exemptions for related and sporadic income sources, nonprofit organizations can earn some exempt types of income without penalty. These include:
- activities carried on primarily for the benefit of the members, employees, patients, students, or officers of the organization
- activities done by volunteers, such as a car wash or carnival
- renting out the organization's list of donors
- selling items donated to the organization, such as a baked goods, books, or clothing
- low-cost items given for donations, such as address labels, Christmas seals, or greeting cards
- trade shows about the organization's exempt function
- interest, dividends, and royalties; rents; and, profits on sale of property owned by the organization