What Can a Nonprofit Use Donations For?

Donations are the lifeblood of many nonprofit organizations.

However, at some point you may have found yourself wondering, "What can a nonprofit use donations for?"

The answer is multifaceted—but no worries! In this article, we are going to explain the different types of nonprofit donations, their pros and cons, and what you can use the donations for.

Let’s get started.

Nonprofit organizations rely heavily on donations to provide services related to their missions.

Without donations, many nonprofits could not carry out their different programs and initiatives, such as providing meals at a food bank, offering educational opportunities, or even advocating for social justice.

Not only are donations needed so that nonprofits can provide these resources, they are also needed to cover operational expenses. Things like staff salaries, rent, and even marketing materials all cost money and are often needed for a nonprofit to operate effectively. Donations help cover these expenses so that organizations can continue to stay afloat and carry out their missions.

Another reason why nonprofit donations are so important is that they help organizations raise awareness of their causes and foster engagement with their communities.

‍Raising money at a nonprofit often involves sharing about your organization’s mission at events, through direct mail, and on social media. All of these channels help you spread awareness of the issue your nonprofit is aiming to address while also helping you garner support from your community.

There are a few different types of donations that can be made to nonprofit organizations. We’ve broken down and explained five of the most common types below.

One-time Individual Donations

A one-time donation is a single monetary payment made to a nonprofit organization at the donor's discretion.

Individual donations can come in various forms, such as cash, check, or online payments.

One of the benefits of making one-time donations is that donors can choose to give any amount they wish, from as little as a few dollars to hundreds or even thousands of dollars.

On the other hand, since one-time donations do not come with any planned schedule, they don’t provide nonprofits with as reliable a source of steady income as recurring donations do.

Recurring Gifts

Recurring gifts are donations that are made on a scheduled basis.

Recurring gifts occur when an individual commits to a consistent, recurring donation schedule, such as monthly, quarterly, or annually.

For example, a donor might not be able to donate $600 all at once, but they may be able to budget an extra $50 a month as a recurring gift. This would amount to a total donation amount of $600 over the year but with smaller regular payments.

One benefit of recurring gifts is that they provide consistent, predictable cash flow. This allows nonprofits to better budget and plan out their programs. Additionally, recurring donations can put less financial strain on the donor by spreading their contribution out over time rather than all at once.

On the other hand, setting up a recurring donation may require more effort on the part of both parties, as there is usually some paperwork involved, and it may be difficult to adjust if the donor's situation changes. Additionally, depending on the payment method, it may involve additional processing fees.

To learn how to increase recurring donations at your organization, check out this helpful post.

Stock

Nonprofits can also receive donated stock.

Donating long-term appreciated securities such as stocks, bonds, and mutual funds allows donors to take advantage of the tax benefits associated with these types of investments.

When you donate stock to an organization, you won't need to remove the long-term capital gains taxes paid from the overall sum.

For example, let's say John owns stock in a company that he purchased ten years ago when it was valued at $10 per share. If he sells the stock, he must pay capital gains taxes on the $20 appreciation per share. However, if John donates the stock directly to a nonprofit organization, he can claim an itemized deduction of up to $20 per share and avoid paying any tax liability.

Transferring stocks is also quite simple; either you or your broker fills out the transfer authorization form.

The main advantage of stock donations is that they often provide a larger donation amount than would have been achieved via liquidation or sale.

In-kind Donations

Unlike monetary donations, in-kind donations are gifts of goods, services, time, or expertise from individuals or businesses to a nonprofit organization.

For example, let's say an animal rescue center needs supplies such as blankets, toys, and food for their animals. In this case, they might request donations of these items instead of cash donations.

Another example could be providing a service. Perhaps a donor is a graphic designer and they design a brochure for the nonprofit organization for free. This would be an in-kind donation.

In-kind donations help nonprofits carry out their missions and alleviate some of the financial burdens that accompany them. Additionally, in-kind donations can be more valuable to the nonprofit than a monetary donation because they can fill specific needs of the organization that require particular skills or items.

However, to avoid receiving unhelpful or unneeded donations, most organizations have specific policies that outline what sort of in-kind gifts they can and cannot accept.

Planned Gifts

A planned gift is a type of donation that allows individuals to make charitable gifts by setting up a trust or will.

A planned gift is usually made as part of an estate plan and typically involves more significant sums of money, investments, or real estate than regular donations. With a planned gift, the donor can stipulate how their assets are distributed upon their death.

For example, a donor can set up a trust stating that 10% of their assets will be donated to a nonprofit organization after passing. By setting up the planned gift, donors can fulfill personal philanthropic goals.

The main advantage of planned giving is that it allows donors to make large donations. Additionally, it gives donors peace of mind knowing that the charities they care about most will be cared for even after they pass away.

However, setting up a planned gift can be complicated and may require legal assistance to ensure that the donor's wishes are fulfilled.

Corporate Gifts

Corporate donations are donations of money, property, or services made by a business or corporation to a nonprofit organization.

Corporate donations are beneficial both to the nonprofit organization and the corporation. These donations can be used as a tax deduction for businesses while giving nonprofits access to additional resources they may not have had otherwise.

Additionally, corporate donations often positively impact the corporation’s reputation as they show their commitment to giving back and supporting the community.

For example, companies like Amazon have entire teams dedicated to providing corporate donations.
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Some companies also offer grants that nonprofit organizations can apply for. You can learn more about how to find and win corporate grants here.

If you want to craft an Effective Nonprofit Donation Request, feel free to access our template that is made in Canva, an easy-to-use creative design tool. You can jump right in, change colors, add your logo, and adjust the copy so it fits your brand.

Nonprofits can use donations for a variety of different things.

With that being said, how a nonprofit manages its donations depends heavily on whether those donations were restricted or unrestricted gifts. We will explain the difference between restricted and unrestricted donations below and outline how they each can be used by nonprofit organizations.

Restricted Gifts

Restricted gifts, also known as designated or earmarked gifts, are donations made by donors with specific instructions regarding how the funds should be used.

The donor may specify that their contribution should support a particular program, project, or purpose within the organization. These restrictions can be either temporary, such as funding a one-time event, or permanent, like establishing an endowment to provide ongoing support.

If a donation is restricted, it can only be used for what it is restricted or earmarked for—nothing else.

Pros:

1. Attracting Donors: Restricted gifts can entice donors who want to ensure their money is used for a specific cause or initiative that aligns with their values and interests.
2. Targeted Impact: These donations can help nonprofits achieve specific goals or fund important projects that may not have been possible without the designated funds.

Cons:

1. Limited Flexibility: Restricted gifts can limit a nonprofit's ability to allocate resources where they are most needed, potentially hindering the organization's overall effectiveness.
2. Increased Administrative Burden: Tracking and reporting on the use of restricted funds can require additional time and resources, which could detract from the nonprofit's mission-focused work.

Unrestricted Gifts

Unrestricted gifts, also known as general or undesignated gifts, are donations made without any conditions or stipulations on how the funds should be used.

This allows the nonprofit to allocate the funds where they are most needed, providing greater flexibility in addressing the organization's priorities and operational needs.

Pros:

1. Flexibility: Unrestricted gifts give nonprofits the freedom to use the funds as they see fit, allowing them to respond to changing needs and priorities effectively.
2. Operational Support: These donations can be used to cover essential expenses such as salaries, rent, utilities, and other administrative costs that are necessary for the organization's day-to-day functioning.

Cons:

1. Less Appealing to Donors: Some donors may be hesitant to contribute unrestricted gifts, as they might prefer to know exactly how their donations will be used.
2. Difficulty Demonstrating Impact: It can be challenging for nonprofits to showcase the specific impact of unrestricted gifts, as these funds are often used to support a wide range of activities and initiatives.

Common Uses for Donations

In general, nonprofits have lots of flexibility in how they use their donations so long as they are using them to advance their missions. Below are a few of the most common areas in which nonprofits allocate their funding.

• Programs: Organizations often need funding to carry out their mission-oriented programs. This could include running educational programs, providing medical care to underserved populations, or any other initiatives the nonprofit has set forth.
• Equipment and Supplies: Nonprofits may require specialized equipment, such as computers or lab supplies, to conduct their work. Donations can help pay for these essential items and ensure the organization has the resources to accomplish its mission.
• Operational Costs: Nonprofits need money for operational costs, including rent, utilities, and staff salaries. Donations can help cover these essential expenses and ensure that the organization has what it needs to stay afloat.

Unless the donation is restricted for a certain purpose, nonprofits have the flexibility to allocate their donations in ways they feel will best help them advance their missions.

If you're looking to start building your own nonprofit donation receipt, get started quickly by using our Nonprofit Donation Receipt Template. The template is made in Canva, an an easy-to-use creative design tool. You can jump right in, change colors, add your logo, and adjust the copy so it fits your brand.Why start from scratch when you can use one of our templates?

Donations are a critical source of support for nonprofit organizations. In this article, we explained the different types of donations that can be made, including planned gifts, individual donations, corporate gifts, and more while also outlining how they can each be used.

For more insights and tips on nonprofit fundraising and how you can raise more support for your organization, check out Instrumentl’s blog.

Happy fundraising!