Nonprofit words, in plain English

The part of the US tax code for charities. A 501(c)(3) group does not pay federal income tax, and most gifts to it are tax-deductible for the donor.

To get this status, most groups apply to the IRS with Form 1023 or Form 1023-EZ.

See also: Public charity, Private foundation, Form 1023, Determination letter. Official source

A choice a public charity can make with the IRS to measure its lobbying by dollars spent instead of the vaguer "substantial part" test.

It gives you clear spending limits. Churches and private foundations cannot make it.

See also: Lobbying. Official source

A way of keeping books where you record income when it is earned or promised, and costs when you owe them, even before cash moves.

Audits and larger organizations usually use accrual accounting.

See also: Cash basis accounting, Audit.

A yearly summary for supporters of what your organization did, who it helped and how it used its money.

This is different from the IRS Form 990 and from state annual filings.

See also: Form 990, Stewardship.

The document you file with your state to create a nonprofit corporation. It names the organization and states its purpose.

For 501(c)(3) status, the IRS requires your organizing documents to limit your purpose to charitable ones and to send your assets to another charity if you close.

See also: Bylaws, Nonprofit corporation, Dissolution. Official source

The office in many states, often under the state attorney general, that oversees charities, protects donors and enforces charity law.

In New York, it is the Attorney General's Charities Bureau.

See also: Charitable solicitation registration, Dissolution. Official source

A detailed check of your financial statements by an independent certified public accountant (CPA), who gives an opinion on whether they are accurate.

Some states, funders and government grants require an audit above certain sizes.

See also: Review, Compilation, Audit committee.

A board committee that hires the outside auditor and reviews the audit results.

See also: Audit, Committee.

When the IRS takes away an organization's tax-exempt status because it did not file a required Form 990 or 990-N for three years in a row.

You can apply to get your status back, but it takes time and paperwork.

See also: Form 990-N (e-Postcard), Form 990. Official source

A search of a person's records, such as criminal history, before they work or volunteer, especially with children or other vulnerable people.

Get written permission first, and follow federal and state rules.

See also: Safeguarding, Volunteer.

Information about a situation before your program starts, so you can measure change later.

See also: Evaluation, Indicator.

The board member who leads board meetings and works most closely with the executive director.

See also: Board of directors, Officers.

The group of people legally responsible for a nonprofit. The board sets direction, hires and oversees the executive director, and makes sure money is used well.

See also: Officers, Duty of care, Duty of loyalty, Duty of obedience, Executive director. Official source

A plan for the money you expect to bring in and spend over a period, usually your fiscal year.

See also: Fiscal year, Program budget, Cash flow.

Your organization's own rule book. Bylaws say how the board works, how people are elected, and how decisions are made.

Follow them. If they no longer fit, the board can change them the way they allow.

See also: Articles of incorporation, Board of directors, Quorum.

Spending to make your organization stronger, such as training, better systems or new staff, so it can do more good over time.

See also: General operating support, Overhead.

A clear explanation of why your work matters, what you need, and what a gift will make possible.

See also: Letter of inquiry (LOI), Major gift.

A way of keeping books where you record money when it actually comes in or goes out.

Simple, and common for very small groups.

See also: Accrual basis accounting.

The timing of money coming in and going out. You can have a healthy budget and still run out of cash in a slow month.

See also: Budget, Reserves.

Signing up with a state government before you ask people in that state for donations. Many states require it, and the rules differ in each one.

Golden Hint's directory lists the official office for every state.

See also: Attorney general charities bureau.

A small group of board members, and sometimes others, who work on one area, such as finance or fundraising, and report back to the full board.

See also: Finance committee, Board of directors.

When a CPA puts your financial information into standard financial statements without checking or verifying it.

See also: Audit, Review.

When a board member or staff member could gain personally from a decision the organization makes. They should say so and step out of that decision.

Form 990 asks whether you have a written conflict of interest policy.

See also: Private inurement, Duty of loyalty, Excess benefit transaction. Official source

On Golden Hint, one hour of expert help, given or received. A credit is not money.

You earn credits by helping other charities, and spend them to get help.

See also: Exchange, Welcome grant, Offer, Request.

Raising money online from many people who each give a small amount, often through a fundraising website.

Check whether your state's charity registration rules cover online fundraising.

See also: Charitable solicitation registration.

The letter from the IRS that says your organization is tax-exempt, and under which section of the law.

Keep it safe. Funders, banks and software discount programs often ask for a copy.

See also: 501(c)(3), Form 1023. Official source

In IRS rules, an insider who has strong influence over a charity, such as a board member, top staff member, big donor, or their family.

See also: Excess benefit transaction. Official source

The formal process of closing an organization. A charity must give its remaining assets to another charity, not to its members or leaders.

Many states require you to tell the attorney general first. You must also tell the IRS.

See also: Articles of incorporation, Attorney general charities bureau. Official source

A written policy that says which records you keep, for how long, and how you safely destroy the rest.

See also: Minutes. Official source

Directors and officers insurance. It helps protect board members and officers if they are sued over decisions they made for the organization.

See also: Board of directors, General liability insurance.

An account at a sponsoring charity where a donor puts money, gets a tax deduction right away, and later recommends grants to other charities.

Gifts that come to you from a DAF are grants from the sponsoring charity, not directly from the donor.

See also: Grant, Public charity. Official source

The path from first contact to deeper giving: finding, getting to know, asking, and thanking donors.

See also: Major gift, Stewardship.

The share of last year's donors who give again this year.

Keeping a donor usually costs much less than finding a new one.

See also: Stewardship, LYBUNT.

A board member's legal duty to pay attention, ask questions and make informed decisions, as a careful person would.

See also: Duty of loyalty, Duty of obedience, Board of directors.

A board member's legal duty to put the organization's interests ahead of their own when making decisions.

See also: Conflict of interest, Duty of care.

A board member's legal duty to keep the organization true to its mission and to follow the law and its own rules.

See also: Duty of care, Mission statement, Bylaws.

Money a charity makes by selling goods or services, such as fees, tickets or a shop.

See also: UBIT (unrelated business income tax).

A nine-digit number the IRS gives an organization, like a Social Security number for a group. You need one to open a bank account and to apply for tax-exempt status.

The IRS gives EINs for free. Never pay a website to get one.

See also: Form 1023. Official source

A legal test of whether a worker is your employee or an independent business. It depends on how much you control what they do and how they do it.

Getting this wrong can lead to back taxes and penalties.

See also: Form W-2, Form 1099-NEC. Official source

Money a charity invests and keeps, usually spending only part of the earnings each year. It is meant to last a long time.

State law sets rules on how much of a donor-restricted endowment you may spend.

See also: Restricted gift, Reserves.

Collecting and studying information to learn whether a program is working and how to improve it.

See also: Indicator, Outcomes.

A deal in which a charity gives an insider more value than it gets back, such as paying too much for a service. It can lead to IRS penalty taxes.

See also: Private inurement, Disqualified person, Conflict of interest. Official source

The part of Golden Hint where charities trade skills. You give an hour of help to one charity and receive an hour from another.

See also: Credit, Offer, Request.

The top staff leader of a nonprofit, hired by and reporting to the board. Some groups say CEO or president.

See also: Board of directors, Founder syndrome.

A board committee that reviews the budget, financial reports and controls, usually led by the treasurer.

See also: Committee, Treasurer, Budget.

An existing charity that takes your project under its wing, so your project can accept tax-deductible gifts without being its own charity yet.

The sponsor usually charges a fee and keeps legal control of the money. Read the agreement carefully.

See also: Fiscal sponsorship agreement, 501(c)(3).

The written contract between a fiscal sponsor and a project. It sets out who controls the money, the fees, and what happens if you leave.

See also: Fiscal sponsor.

The 12-month period your organization uses for its books and tax returns. It can match the calendar year or end on the last day of another month.

Your Form 990 due date depends on when your fiscal year ends.

See also: Form 990, Budget. Official source

The full IRS application to become a 501(c)(3) charity. You file it online.

It asks about your purpose, activities, money and leaders.

See also: Form 1023-EZ, Determination letter, 501(c)(3). Official source

A shorter, simpler IRS application for 501(c)(3) status that only small organizations can use.

Check the IRS eligibility worksheet before you choose it. Some funders prefer groups that filed the full Form 1023.

See also: Form 1023, 501(c)(3). Official source

The form you use to report payments to an independent contractor for their work.

See also: Employee vs. contractor. Official source

The yearly information return most tax-exempt organizations file with the IRS. It shows money in and out, leaders, pay and programs.

Form 990 is public. Anyone can read yours, so it is part of how donors judge you.

See also: Form 990-N (e-Postcard), Form 990-EZ, Form 990-PF, Public disclosure. Official source

A shorter version of Form 990 for mid-sized tax-exempt organizations.

The IRS sets the size limits for who may use it. Check the form instructions each year.

See also: Form 990, Form 990-N (e-Postcard). Official source

A short online yearly notice for small tax-exempt groups. Groups whose gross receipts are normally $50,000 or less can usually file it.

Missing it three years in a row means you lose your tax-exempt status automatically.

See also: Form 990, Automatic revocation, Gross receipts. Official source

The yearly return that private foundations file with the IRS, whatever their size.

See also: Private foundation, Form 990. Official source

The IRS form an exempt organization uses to report and pay tax on unrelated business income.

An organization with $1,000 or more of gross income from an unrelated business must file it.

See also: UBIT (unrelated business income tax). Official source

The form you give each employee, and file with the government, showing wages paid and taxes withheld for the year.

See also: Employee vs. contractor. Official source

When a founder holds on so tightly that the organization cannot grow or plan for the future without them.

See also: Executive director, Succession plan.

Golden Hint membership for people who are still forming a charity and do not have 501(c)(3) status yet.

See also: 501(c)(3), Fiscal sponsor.

Splitting your costs into three groups: programs, management and general, and fundraising.

Form 990 asks for this split.

See also: Overhead, Form 990. Official source

Insurance that helps pay if someone is hurt or their property is damaged because of your organization's activities, such as at an event.

See also: D&O insurance.

A grant you can use for any part of your work, including salaries and rent. Many charities call it the most useful kind of grant.

See also: Unrestricted funds, Grant.

A single piece of advice that changes everything. On Golden Hint, it is the one thing an experienced person would tell you over coffee.

See also: Exchange.

Money given by a foundation, company or government to support your work. Most grants have a written agreement and reporting rules.

See also: Grant agreement, General operating support, Letter of inquiry (LOI).

The contract that comes with a grant. It says what the money is for, the dates, and what reports you must send.

See also: Grant, Restricted gift.

All the money your organization took in during the year, from every source, before you subtract any costs.

The IRS uses gross receipts to decide which version of Form 990 you file.

See also: Form 990-N (e-Postcard), Form 990. Official source

An IRS arrangement that lets a central organization cover its local chapters under one tax-exempt ruling, so each chapter does not have to apply.

See also: 501(c)(3), Determination letter. Official source

The long-term, wider change your work helps cause, often in a whole community.

See also: Outcomes, Theory of change.

A specific sign you measure to see whether an outcome is happening, such as the percent of students who graduate.

See also: Outcomes, Evaluation.

Costs that support the whole organization rather than one program, like rent, accounting or the director's time.

Funders sometimes pay a set percentage for these, called an indirect cost rate.

See also: Overhead, Program budget.

A gift of goods or services instead of money, like donated food, office space or free legal work.

Donors who give large non-cash gifts may need IRS Form 8283. Donated services are generally not deductible.

See also: Written acknowledgment, Restricted gift. Official source

The resources you put into a program, such as money, staff, volunteers and space.

See also: Logic model, Outputs.

A written summary of a role's purpose, duties and skills needed. It is useful for paid staff and volunteers alike.

See also: Volunteer, Executive director.

A short letter to a funder that describes your project and asks whether they want a full proposal.

See also: Grant, Case for support.

Trying to influence laws, such as asking lawmakers to vote for or against a bill. A 501(c)(3) may do some lobbying, but too much can cost its tax-exempt status.

Lobbying is different from political campaign activity, which 501(c)(3)s may not do at all.

See also: 501(h) election, Political campaign activity. Official source

A one-page chart that links your resources and activities to your outputs, outcomes and impact.

See also: Theory of change, Outputs, Outcomes.

Short for Last Year But Unfortunately Not This year: a donor who gave last year but has not given yet this year.

See also: SYBUNT, Donor retention.

A large gift from one donor. Each charity sets its own amount for what counts as major.

See also: Planned gift, Stewardship, Donor pipeline.

When a company or donor gives an extra gift that matches what someone else gives, such as an employer matching an employee's donation.

See also: Major gift.

The written record of a meeting: who came, what was decided, and how people voted.

Approve them at the next meeting and keep them. They are your proof of good decisions.

See also: Quorum, Secretary.

One or two sentences that say why your organization exists, who it serves, and what it does.

See also: Vision statement, Theory of change.

Research to learn what a community needs and what help already exists, before you start or change a program.

See also: Theory of change, Stakeholder.

What a nonprofit owns minus what it owes. It is split into money with donor restrictions and money without them.

See also: Restricted net assets, Statement of financial position.

A legal entity created under state law for a purpose other than making profit for owners. It has no owners or shareholders.

Being a nonprofit corporation is a state matter. Being tax-exempt is a separate federal step with the IRS.

See also: Articles of incorporation, 501(c)(3).

On the Golden Hint Exchange, a skill your charity is willing to share with others, such as grant writing or bookkeeping.

See also: Exchange, Request, Credit.

Board members or staff with set jobs named in the bylaws, usually a president or chair, a secretary and a treasurer.

See also: Board of directors, Bylaws, Treasurer.

Welcoming and training a new staff member, volunteer or board member so they know how to do their role.

See also: Volunteer, Board of directors.

The changes in people's lives because of your work, like better health or a new job.

Funders often care more about outcomes than outputs.

See also: Outputs, Impact, Indicator.

The direct, countable results of your activities, like the number of meals served or classes held.

See also: Outcomes, Logic model.

A common word for administrative and fundraising costs. Every charity needs some overhead to run well.

A very low overhead ratio is not a sign of a good charity. Ask what the money achieves.

See also: Indirect costs, Capacity building.

A small, short test of a new program to learn what works before you grow it.

See also: Evaluation.

A gift arranged now but often received later, such as a gift left to a charity in a will.

Also called a legacy gift or bequest.

See also: Major gift, Endowment.

A donor's promise to give a set amount, often paid over time.

See also: Major gift, Accrual basis accounting.

Supporting or opposing a candidate for public office. A 501(c)(3) must never do this, not even a little.

Nonpartisan voter education is allowed if it does not favor any candidate.

See also: Lobbying, 501(c)(3). Official source

When a charity's work helps private people or companies more than just a little. Too much private benefit can cost a charity its 501(c)(3) status.

See also: Private inurement, Excess benefit transaction. Official source

A 501(c)(3) group that usually gets its money from one person, family or company, and often gives grants to other charities.

Private foundations have extra rules and taxes, and file Form 990-PF.

See also: Public charity, Form 990-PF, Grant. Official source

When a charity's money or assets flow to insiders, such as board members or founders, beyond fair pay for real work. The law does not allow it for 501(c)(3)s.

Examples include paying a board member far more than market rate, or giving them a loan on special terms.

See also: Private benefit, Excess benefit transaction, Conflict of interest. Official source

A budget for one program or project, often included in a grant proposal.

See also: Budget, Indirect costs.

A 501(c)(3) group that gets much of its money from the public or the government, or that runs certain activities like schools or hospitals. Most charities are public charities.

Public charities face fewer rules than private foundations.

See also: 501(c)(3), Private foundation, Public support test. Official source

The rule that a tax-exempt organization must let the public see its recent yearly returns, such as Form 990, for three years after they are due or filed.

Posting them online counts for providing copies, but you must still allow inspection in person.

See also: Form 990. Official source

An IRS test that checks whether a public charity gets enough of its money from the public and the government. Charities that fail it can be treated as private foundations.

Public charities report it on Schedule A of Form 990 or 990-EZ.

See also: Public charity, Schedule A, Private foundation. Official source

A payment that is partly a gift and partly payment for something the donor gets back, like a gala dinner. If the payment is more than $75, the charity must give a written statement.

The statement tells donors that only the amount above the value of what they got may be deductible, and estimates that value.

See also: Written acknowledgment, Tax-deductible. Official source

The smallest number of board members who must be present for a meeting to make official decisions. Your bylaws set the number.

See also: Bylaws, Minutes.

The person or company named with the state to receive legal papers and official mail for your organization.

Use an address where someone always checks the mail. Missed papers can lead to lost lawsuits or penalties.

See also: Nonprofit corporation.

On the Golden Hint Exchange, a post that asks for help with a specific need.

See also: Exchange, Offer, Credit.

Money set aside for emergencies or slow times. Many charities aim to keep a few months of costs in reserve.

See also: Cash flow, Endowment.

A gift the donor says must be used for a certain purpose or time, such as a scholarship fund. You must use it the way the donor said.

See also: Unrestricted funds, Restricted net assets, Endowment.

Net assets that donors have limited to a certain purpose or time. Accountants call them net assets with donor restrictions.

See also: Net assets, Restricted gift.

A lighter check of your financial statements by a CPA. It gives less assurance than an audit and costs less.

See also: Audit, Compilation.

The policies and steps you take to keep the people you serve, especially children and vulnerable adults, safe from harm and abuse.

See also: Background check, Volunteer agreement.

Signing up in SAM.gov, the federal system. Your organization gets a Unique Entity ID (UEI), which you need before you can apply for federal grants.

See also: Grant. Official source

The part of Form 990 or 990-EZ where a public charity shows why it is a public charity, including its public support.

See also: Public support test, Form 990. Official source

The officer who makes sure meeting minutes are taken and records are kept.

See also: Officers, Minutes.

Anyone who cares about or is affected by your work, such as the people you serve, staff, donors and neighbors.

See also: Needs assessment.

The nonprofit version of an income statement. It shows money in, money out, and the change in net assets over a period.

See also: Statement of financial position, Net assets.

The nonprofit version of a balance sheet. It shows what you own, what you owe, and your net assets on one date.

See also: Statement of activities, Net assets.

Thanking donors, reporting back on how their gifts were used, and keeping them involved, so they want to give again.

See also: Donor retention, Major gift.

A small fixed payment to a volunteer or intern, usually to help cover costs. It may count as taxable pay, depending on the amount and facts.

Ask an accountant before you pay one.

See also: Volunteer, Employee vs. contractor.

A plan for the next few years that sets goals and priorities, and how you will reach them.

See also: Mission statement, Theory of change.

A plan for who will step in, and how, when a key leader leaves.

See also: Executive director, Founder syndrome.

Short for Some Year But Unfortunately Not This year: a donor who gave in some past year, but not this year.

See also: LYBUNT, Donor retention.

A gift a donor can subtract from their taxable income, if they itemize on their tax return. Gifts to most 501(c)(3) charities qualify.

See also: 501(c)(3), Written acknowledgment. Official source

The free IRS tool to check whether an organization is tax-exempt and can receive tax-deductible gifts.

See also: 501(c)(3), Automatic revocation. Official source

A rule in the bylaws that says how many terms in a row a board member may serve.

Term limits help bring in new people and make it easier to rotate off someone who is not active.

See also: Bylaws, Board of directors.

A clear explanation of how and why your work will lead to the change you want to see.

See also: Logic model, Outcomes, Impact.

The officer who watches over the organization's money for the board. The treasurer makes sure finances are reported clearly and on time.

See also: Officers, Finance committee.

Tax a charity may owe on money from a business it regularly runs that is not substantially related to its mission.

Selling items made in your job-training program is usually related. Renting out your parking lot every day may not be.

See also: Form 990-T, Earned income. Official source

A group of people who work together for a shared purpose without forming a corporation.

It is simple to start, but members may have more personal legal risk. Many groups later incorporate.

See also: Nonprofit corporation.

Money a charity can use for any part of its mission, including rent, salaries and bills.

See also: Restricted gift, General operating support.

A short statement of the future your organization hopes to help create.

See also: Mission statement.

Someone who gives time to an organization without pay.

Federal law gives volunteers some protection from personal liability when they act in good faith within their role.

See also: Volunteer agreement, Stipend, Background check. Official source

A short written note of what a volunteer will do, what support they will get, and the rules they agree to follow.

See also: Volunteer, Safeguarding.

The credits a verified charity receives when it joins Golden Hint, so it can ask for help right away.

See also: Credit, Exchange.

A written policy that tells people how to report suspected wrongdoing safely, and protects them from punishment for reporting.

Form 990 asks whether you have one.

See also: Conflict of interest. Official source

A receipt or letter a charity gives a donor to confirm a gift. Donors need one to deduct any single gift of $250 or more.

It must give your organization's name, the cash amount or a description of non-cash items, and whether the donor got anything back.

See also: Quid pro quo contribution, In-kind gift. Official source