Some organizations are fortunate enough to have donors who prefer to make large, undesignated donations to be allocated for different uses throughout the year as opposed to making multiple smaller donations. Below is a possible method to use for tracking the original donation and the subsequent allocations, but please consult with your organization's CPA for any tax implications that the process below may have.
- If you don't already have one, create an easily identifiable financial type to track these undesignated donations (visit Managing Financial Types for detailed instruction on creating new financial types). I have opted to use the name "Donor Advised Fund" (or DAF for short). I have also marked the financial type tax deductible - this means that the funds should only be allocated to other non-deductible financial types to avoid any inaccuracy when it comes time to send out tax letters (this would be something to consult with your CPA).
- Mr. Generous Donor sends a check for $18,000 received on July 1, 2014, but has not indicated how he would like to allocate those funds - record a contribution with the relevant financial type (see Creating New Contributions - Check/Cash/EFT for detailed instruction). After recording this initial contribution, Mr. Donor's Financial Summary tab will look as follows:
- On July 15, Mr. Donor calls the office and requests that his member dues should be paid from the funds already received into the "Donor Advised Fund" - two contributions will be made to track this reallocation - the first, a negative contribution to track the amount being "withdrawn" from the "Donor Advised Fund"...:
...and the second a positive contribution to track the allocation of the funds. Once both contributions are recorded, Mr. Donor's Financial Summary tab will now look as follows:
- Just to solidify the process, let's add one more allocation to the picture - Mr. Donor calls the office on August 1 and requests that $5,000 be allocated from his original donation to the Development Fund. Again, you would create a negative contribution reflecting the "withdrawal" from the "Donor Advised Fund", and a positive contribution reflecting the allocation of the funds to the relevant financial type, in both instances being sure to add an easily followed note in the Source field to allow for an audit trail. Once both contributions have been recorded for this newly requested allocation, Mr. Donor's financial summary will now look as follows:
Note how this makes it easy to see how much is still available for allocation in the "Donor Advised Fund", and the notes included in the Source provide a detailed, "at-a-glance" explanation of how those funds were allocated.
The process above is appropriate for allocations being made from a larger donation within the same tax year - if allocations are made from a prior tax year, the method for tracking just how much there is left to allocate and the tax deductibily of the allocations will need to be treated differently. Continuing with our example:
- December 31, 2014 comes and goes and you have issued Mr. Donor a tax letter indicating that the full amount of his original $18,000 contribution is fully deductible (see Year End Tax Letters for detailed instruction), however, Mr. Donor still has $11,200 available for allocation. He calls the office on January 15, 2015, and requests that another $5,000 be directed towards the development fund. You would still go ahead and create two contributions, one negative and the other positive, but this time you must make sure to indicate that the positive contribution is non-monetary...
...and non-deductible by entering in the full amount of the allocation in the "Additional Details" section at the bottom of the Record Contribution screen to avoid giving Mr. Donor a double tax credit:
Again, this process is being offered as a convenience - your organization is entirely responsible for consulting with your CPA for any tax implications this type of reporting may carry and whether it is right for you.