Now that tax season is pretty much over (although audits may be on the rise this year), it’s a good moment to reflect on how you handled things last year, and what you can do better for next year’s tax season. Like many nonprofit organizations in Illinois, you may have provided advice to your donors about their donations, their charitable giving tax deductions, and more. However, to make sure that you’re providing legally compliant information to your donors, with the goal of keeping them as donors and ensuring they’re able to take advantage of tax benefits, it is critical to speak with an Illinois nonprofit attorney experienced in nonprofit donation law and Illinois and federal tax laws.
At James C. Provenza & Associates, serving the greater Chicago area, we are CPAs as well as nonprofit lawyers, and by getting us to help with your nonprofit legal and tax compliance, you can always make sure that your donors are receiving the most accurate and authoritative information regarding their donations and the federal and/or state tax returns. For a free consultation with attorney Provenza, call our Chicago nonprofit law firm today at (847) 729-3939.
Tax Deductions for Charitable Contributions
The donors who provide charitable donations to your Illinois nonprofit can take deductions on their federal income taxes. However, there are rules to follow, and if your donors are asking you for advice about tax deductions or if you are voluntarily reaching out to ensure an optimal nonprofit-donor relationship, then it’s essential to understand the nuances of charitable donation tax law and how it may affect an individual’s tax returns.
Do’s of Advising Donors During Tax Season
When thinking of your donors, it’s important to approach the issue with compassion, patience, and understanding, which is quite similar to how you’d maintain relationships with friends and family. However, you may be wondering, “I’m not that close with my donors.” Although this may be true, if they are coming to you for tax advice or you are providing it for them to maintain a positive nonprofit-donor relationship, then it’s important to integrate these qualities to your advice.
Donor cultivation requires communication and engagement, and so a few “do’s” of advising donors during tax season can include:
- Create a system of thanking donors and collaborators, including volunteers and event guests. This allows you to start a communication pathway with donors early on, and when tax season rolls around, you’ll already have an infrastructure in place to provide optimal advice.
- Understand when donors might need tax advice. Some indicators that your donors will need help include:
- They have appreciated assets they could have donated, but wrote checks or donated via credit card
- They need to pay significant capital gains taxes that could be avoided or minimized through charitable giving
- They wait until the end of the year to make all of their donations
- They donate significantly different amounts every year
- They ask about deducting contributions for which they are not entitled, such as entire amounts for tables, tickets or items at galas, golf outings or auctions
Don’ts of Advising Donors During Tax Season
As the owner or a representative of an Illinois nonprofit, you may be focusing on the day-to-day activities of the nonprofit and not so much on tax issues, such as giving your donors correct information for making tax deductions for charitable donations. Nevertheless, when cultivating a donor list and ensuring good communication with your donors, it’s important to avoid a few mistakes that could turn your donors away.
A few “don’ts” of advising donors during tax season can include:
- Make promises you can’t keep and provide false advice to please a donor. Sometimes, nonprofits in Illinois will do anything to cultivate good relationships with donors, which includes saying not-entirely-true information that donors want to hear. This can be very dangerous, as receiving money from your donors always comes with great responsibility.
- Engage with a donor without proper research. Although Google is a good source of information, the unique circumstances of your donors may require specialized, comprehensive information. This means conducting research on your donors as well; take time to uncover the funding priorities of your donors and other organizations they may have funded in the past.
- Underestimate the impact of a positive donor relationship. The world of philanthropy is smaller than you think, and properly cultivating a good donor relationship can help secure funding while opening your nonprofit
Fundraising and Illinois Nonprofit Legal Compliance With James C. Provenza & Associates
At our nonprofit law office serving Chicago area nonprofits, we at James C. Provenza & Associates have extensive tax and nonprofit law experience working with many different nonprofits with various needs. As such, when providing information to your donors about how they can make the most out of their charitable donations, our attorneys can ensure that your information is correct and that you’re cultivating a positive nonprofit-donor relationship.
To get Illinois nonprofit attorney James Provenza on your nonprofit’s side, call our law office today at (847) 729-3939.