Finance & Strategy

Real world nonprofit finance matters, and real world thinking about strategies for financial, programmatic, and leadership sustainability. This column is written by Steve Zimmerman, principal of Spectrum Nonprofit Services.

photo of Steve Zimmerman

Sample Tax Deductibility Handout for Auction Participants

This handout illustrates income tax points that can be included with materials provided to auction participants and their advisors. It can help prevent negative reactions resulting from common charitable auction misconceptions, while helping donors achieve desired benefits available from this type of fundraising. Organizations can select questions they feel comfortable including with auction materials, and give the handout to participants as they arrive.

At the end of this article is a link to download this document as a Word file to make it easy to customize.

Dear Friends,

In order to help inform you regarding federal income tax issues associated with a charitable auction, we are providing you with this information as a courtesy for educational purposes. This is not legal or tax advice. Consult IRS resources or your tax advisor for additional information and personal guidance.

Q: May I claim a market value deduction for property that has appreciated in value and that I contribute for sale at a charitable auction?

The answer may depend on the type of property contributed, how you used the property, and how long you owned the property. For most property contributed for auction sale, a tax deduction is typically limited to the lesser of the items' current value or your tax basis, which is usually the amount you paid for the item if you acquired the property by purchase. See IRS Publication 526, Charitable Contributions, or consult a tax professional regarding situations where appreciated property may be deductible at market value.

Q: May I claim a tax deduction for property I purchase at a charitable auction?

You may be able to claim a charitable income tax deduction for the excess of the amount you pay for an auction item over the item's current market value. But in order to claim a deduction, you must intend to make a donation, which is indicated by your awareness of the property's value at the time you bid on the item. You may rely on an estimated value provided by the charity, unless you have reason to know this value is unreasonable. In such case, you will need to document the value and the amount of any deduction by other reliable means.

Q: If I donate services for auction may I claim a tax deduction?

While greatly appreciated as a valuable gift for auction, unfortunately, the donation of services to a charity is never tax deductible.

Q: If I donate the use of a vacation home or other property for auction may I claim a tax deduction for the value of such use?

The donation of the use of property, including goods, equipment, and facilities is considered a donation of a partial interest in property that is not tax deductible.

Q: What do I need from the organization to document my donation of property for income taxes?

If you donate any single item of property with a value of $250 or more, you must obtain a written acknowledgment from the organization before filing your income tax return for the year of donation. The acknowledgment must include the following:

  1. The name of the donee organization
  2. A description of the donated property (but not the value)
  3. One of the following:
  • A statement that no goods or services were provided in return for the contribution
  • A description and good faith estimate of the value of any goods and services provided in return for the contribution
  • A statement that goods or services provided in return for the contribution were limited to intangible religious benefits

Q: Are there any special requirements for donations of higher value?

Yes. If the total deduction you claim for all non-cash charitable gifts made in a year is more than $500, you must file IRS Form 8283, Noncash Charitable Contributions, along with your income tax return.

Additionally, if you donate an item or group of similar items with a value of more than $5,000 you must obtain a qualified appraisal. In this case, Form 8283 must be signed by the appraiser and the donee organization. You will need to complete part of the form before the donee acknowledgment section may be completed. See the Form 8283 instructions for more information, available at

Q: If I must have an appraisal, may I deduct the cost?

You may deduct the cost of an appraisal of property contributed to a charitable organization as a miscellaneous itemized deduction, subject to the 2% of adjusted gross income limit. However, the cost of an appraisal may not be deducted as a charitable contribution.

Q: Are there situations where it might be more beneficial to sell an item and donate the cash proceeds instead of donating the item for auction?

The following examples illustrate two common tax planning situations for donors of property that will be sold by the charity. The examples assume that the donors are otherwise able to itemize their deductions and can benefit from the full amount of their allowable charitable contributions.

Where a charitable deduction for appreciated property will be reduced by the amount of long-term capital gain that would be realized if sold, it may be preferable to sell the property and donate the after-tax proceeds. This is true because under current law such income is taxed at a lower rate than ordinary income. The net proceeds can then be deducted at the donor's higher marginal tax rate applicable to ordinary income. This may result in greater net tax savings and thereby reduce the cost of a gift to the donor

Example 1: Sarah is undecided whether to donate sports memorabilia with a current value of $2,000 to Favorite Charity for auction, or to sell the item and contribute the after-tax proceeds to Favorite Charity. She purchased the item for $1,000 and has owned it for more than one year. For tax ear 20XX, Sarah has a marginal federal income tax rate of 28%. Accordingly, net capital gain income realized by Sarah in 20XX will be taxed at 15%. The following illustrates the cost of an outright gift to Favorite Charity versus sale of the item and donation of the after-tax proceeds.

Outright gift:

Value of property


Tax deduction*


Tax savings from donation ($1,000 x 28%)


Net cost of gift ($2,000 - $280)


Sale and gift of cash:

Proceeds of sale by Sarah


Income tax on sale {($2,000 - $1,000) x 15%}


After-tax proceeds of sale


Tax savings from donation of proceeds ($1,850 x 28%)


Net cost of gift ($2,000 + $150 - $518)


*Current value of property less long-term capital gain that would be realized if sold instead. This limitation results from the donation of tangible personal property put to an unrelated use by the charity (e.g. auction sale).

In situations where property held for business or for the production of investment income has decreased in value and would produce a tax deductible loss if sold instead, it may be preferable to sell the property and contribute the cash proceeds to the charity. In this way, the donor may receive a greater tax benefit as a result of deducting the full cost basis of the property upon sale.

Example 2: Joe is a dealer in art and his business income is taxed at individual rates. The market for a particular artist has been weak in recent years and he is considering contributing a painting by this artist from his inventory to Favorite Charity for auction. He appreciates the work Favorite Charity does and is hopeful that the painting might fetch greater value at an auction sale. Like Sarah, though, he is unsure whether outright donation or a sale followed by donation of the cash proceeds would make more sense. Joe paid $10,000 for the painting and he feels he could sell it for $5,000 on the open market. Joe has a marginal income tax rate of 33%.

Outright gift:

Joe's cost of painting


Tax deduction**


Tax savings from donation ($5,000 x 33%)


Net cost of gift $10,000 - $1,650)


Sale and gift of cash:

Proceeds of sale by Joe


Tax savings from sale at loss {($5,000 - $10,000) * 33%}


Tax savings from donation of proceeds ($5,000 x 33%)


Net cost of gift ($10,000 - $1,650 - $1,650)


**Limited to market value of $5,000.

If the fair market value of the painting had been more than Joe's cost, his deduction would be reduced by the ordinary income that would result if sold instead, effectively limiting Joe's deduction to his cost basis. This rule applies to the donation of property that would result in ordinary income or short-term capital gain if sold at the time of contribution, such as business inventory or a capital asset held less than one year.

In both examples, the cost of the gift to the donor was reduced as a result of selling the property and contributing the net proceeds to the charity. Donors should evaluate each item of property individually. State and local income taxes should also be considered where applicable.

Of course, selling an item instead of donating it for auction would deprive the organization of the added income that would result in the case of an auction overbid. Donors should consider income tax issues along with their other charitable objectives in making such a decision.

Sample Acknowledgement of Non-Cash Donation

December 15, 20XX

Favorite Charity, Inc.
8000 Main Street
Anywhere, USA 99999

Jane Donor
1234 Spruce St.
Anywhere, USA 99999

Dear Jane,

Thank you for your generous donation of two new hand-made twin bed quilts for sale at our upcoming auction. We did not provide any goods or services in exchange for this contribution.


Steve Smith

Favorite Charity, Inc. is recognized as a tax-exempt public charity under Section 501(c) (3) of the internal Revenue Code. Contributions are deductible to the extent allowed by law.

Alternative additions:

a) Financial information about this organization and a copy of its license are available from the State Solicitation Licensing Branch at 000) 000-0000. The license is not an endorsement by the State. [Note: state laws vary related to such licenses.]

b) Favorite Charity, Inc. is a [California or Nebraska etc.] nonprofit, IRS registration number ___________. Financial and program organization can be found at or at

A Board Member's Guide to Nonprofit Overhead

Calculating overhead rates and managing overhead expense are important staff roles. Board members are not required to know how do staff accounting work, but we do need to bring an informed perspective to our oversight:

Harvard's indirect cost rate is 68% while Iowa State's is 48%. Should the board members of either institution be concerned? As a alumnus of one or the other, should these numbers affect our donations? As a parent of a high school senior, do these numbers influence where we want our child to go? Should they?

Amid the crosstalk about nonprofit overhead, board members and staff do need to understand what the conversation is really about, and how to interpret "what is overhead" for your own organization. Here are eight key things to know about overhead:

1. Apples, oranges, and alligators: One of the more surprising facts about overhead is that while it seems that everyone is talking about it, everyone is actually talking about the different things. The word "overhead" isn't an accounting term, so different people define it differently.

Some accounting terms which are similar to "overhead" and often confused with it are:

  • Indirect costs
  • Administrative costs
  • Shared costs
  • Fixed costs

In one study, respondents were asked which of the above was the closest synonym . . .

Nonprofit Auctions: A Complete Compliance Guide and Sample Forms

Auctions are known for two characteristics: they raise money (sometimes a lot), and they are a ton of work. Blue Avocado contributor and CPA Dennis Walsh gives us a complete, handy compliance guide, and even better: five sample forms to make sure your wording is right:

Charitable auctions have stood the test of time as a great way to leverage our consumption-oriented culture for the benefit of nonprofit efforts. And while auctions have been traditionally held at special events, online auctions have recently increased in popularity, making it easier for volunteers and allowing people to bid from their homes and over an extended period of time.

But whether an auction is live, silent, or online, there are compliance issues. This article presents an overview of key charitable auction compliance issues and how to use donor education as part of compliance. With this background, and the sample worksheets and forms included, you can more easily meet reporting responsibilities . . .

Why is Fundraising More About Leadership Than About Skills? editor notes #93

Fundraisers never lack for advice. One board member tells you that foundations should be giving you money, while another thinks we should talk to Bill Gates. The staff thinks you should raising money from corporations. And the friend you run into at the grocery store tells you to raise money via Twitter or on Kickstarter.

The reality is that the board members should be raising money from foundations and major donors. The staff and the executive director should be raising money from corporations. The friend should be raising money for you on Twitter and Kickstarter.

So actually, fundraising isn't about you raising money, it's about all of them raising money. And your job isn't about so much for you to raise money; your job is about getting all of them to raise money.

And right there is the link between fundraising and leadership.

In fact, fundraising has more in common with volunteer management and community organizing than it does with technical knowledge about prospect research or grantwriting skills. Let's start calling fundraisers what they are: organizational leaders and movement builders. And fundraisers: let's start acting like what we really are!

* Are you an executive who followed a founder or longtime executive director with a compelling story to tell? Much of the literature on nonprofit executive transition has focused on the departing executive director. What about the trials, tribulations and triumphs of the person who comes next? We want to interview you for a First Person Nonprofit article; you can choose whether to use your name or stay anonymous. Please send an email and include your contact information and time zone!

* Discounts and free stuff for the next Blue Avocado Bonus Issue: Got a truly unusual and nationally accesible opportunity our 64,000 readers would love? Let us know! Email Susan Sanow susan at blueavocado dot org.

* In this issue: Ten Things Your Board Is Doing Right And Doesn't Even Realize It, Fundraising in Communities of Color, a quick DIY project with bylaws, and a guest humor columnist about a board comprised of cows (yes, cows). And news from our sponsor, American Nonprofits. -- Jan Masaoka and the Blue Avocado team

Fundraising in Nonprofits of Color

Almost all research on fundraising is done on mainstream nonprofits, and almost all advice and guides on fundraising are addressed implicitly to mainstream nonprofits. Yet because they have different development trajectories, nonprofits in communities of color often have fundamentally different assets and deficits than mainstream organizations of the same size and age.

For instance, imagine two afterschool tutoring programs, each 15 years old, and each with a budget of $600,000. The mainstream program is likely to have been founded by a group of prominent volunteers, mostly white, mostly upper middle income. Today it gets about 70% of its funding from foundations and 30% from individual donors. From its base of founding volutneer donors, the organization had strong writing skills and connections that positioned them for both grantwriting and fundraising events.

In contrast, a parallel tutoring program in an African American or Latino community, for example, is likely to have been founded by a group of community activists, mostly African American or Latino, mostly middle and lower-middle income. With the same budget as the mainstream program, this program gets 95% of its funding from local government, 4% from fundraising events, and 1% from foundations. Its founders had the political connections and savvy to obtain government funding and as an anchor organization in a low-income community, their continued involvement with broader community affairs continues to support their funding strategy as well.

Conventional fundraising advice --

Adding It All Up: Nonprofit CFO Study

Dilbert CFO cartoonThis survey of 906 nonprofit finance professionals reveals some surprises about these crucial-but-often-overlooked staff, looking at questions ranging from educational backgrounds, workload, board and CEO understanding of finance, and CEO compensation:

Nonprofit finance scandals make for eye-catching headlines: whether about misused public funds, egregiously high salaries, constituents not served, or reserves squandered. But while nonprofit finance scandals make the headlines, the people who manage the funds -- nonprofit finance professionals -- are largely overlooked. And while studies have looked at the tenures and experiences of executive directors (CEOs) and development directors, few have looked at the finance professionals in our nonprofits.

Despite the occasional and highly-publicized problem, the very fact that such problems make the news testifies to the infrequency of such occurrences. Nonprofits are relatively free of financial scandal and abuse, demonstrating both professional expertise and a strong sense of values. But today even the best-managed nonprofits are working not only to steward charitable funds, but to manage earned-income operations, to re-invent their business models, to strengthen the leadership functions of governance, and to maximize the use of funds for mission and values.

Finance professionals are at the core of these efforts.

This study was conducted . . .

Charity Raters Part II: Managing Your Rating

In Part I of this two-part article, we summarized the features and criteria of six of the best known "charity raters" including Charity Navigator, Better Business Bureau, and others. Many readers added thoughtful comments and noted lesser-known raters as well; we encourage you to read Part I and the posted comments.

Here in Part II, we offer advice to nonprofits on managing their ratings, and comment on the impact of the raters as a whole.

Just two weeks after we published Part I, an unusual three-some of Guidestar, Charity Navigator and the Better Business Bureau issued an unexpected but welcome joint statement " denouncing the "overhead ratio" as the sole measure of nonprofit performance." (emphasis added) ( The statement also defends overhead to an extent: "Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems -- as well as their efforts to raise money so they can operate their programs. When we focus solely or predominantly on overhead . . .

Matrix Map Part II: The Strategic Imperatives

In this article, Steve Zimmerman continues presentation of the Matrix Map model from the book Nonprofit Sustainability: Making Strategic Decisions for Financial Viability.

In our last Blue Avocado column, we introduced the Matrix Map, which you can use to create a visual representation of your organization's business model. Comprised of all your organization's business lines (activities), the Matrix Map illustrates how your activities work together towards both programmatic impact and financial viability. For many board members, the Matrix Map provides sudden clarity on how the organization's different activities inter-relate. But beyond helping them understand the business model, the Matrix Map can help nonprofit leaders strengthen it.

You'll recall that putting together a Matrix Map calls for plotting your organization's business lines according to their mission impact and financial profitability. Depending on where an activity is placed on the map, a strategic imperative emerges. These strategic imperatives are the actions . . .


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