As 2025 draws to a close, calendar-year nonprofit organizations face a critical window for strategic planning, financial review, and regulatory compliance. For accounting professionals and their nonprofit clients, this season offers an opportunity to ensure fiscal health and prepare for the year ahead. Here are some essential considerations to keep in mind:
Financial Reporting and Budgeting
- Review Year-to-Date Financials: Ensure all income and expenses are accurately recorded. Reconcile accounts and verify that restricted funds are properly tracked.
- Prepare Next Year’s Budget: Use historical data and projected funding to build a realistic budget. Factor in inflation, program expansions, and staffing changes.
- Assess Cash Flow: Evaluate liquidity and plan for any seasonal fluctuations in revenue or expenses.
Compliance and Threshold Triggers
One often-overlooked area is the impact of large bequests or year-end donations on regulatory thresholds. In particular:
- $2 Million Threshold for Audit Requirements: In many states, including California, charitable nonprofits that receive $2 million or more in gross revenue during the fiscal year may be required to undergo an independent audit. This includes bequests, even if they are one-time gifts.
- Planning Tip: If your organization is close to the threshold, consider timing of revenue recognition, donor communication, and whether the bequest is restricted or unrestricted. As your trusted accounting and business advisors, we can help you determine if the audit requirement will be triggered and what documentation will be needed.
Donor Stewardship and Gift Acknowledgment
- Send Year-End Acknowledgments: Timely and personalized thank-you letters help retain donors and fulfill IRS requirements for gifts over $250.
- Highlight Impact: Use newsletters or social media to show how donations have supported your mission this year.
Operational and Strategic Planning
- Review Governance Policies: Update bylaws, conflict of interest policies, and board resolutions as needed.
- Evaluate Program Effectiveness: Use metrics and feedback to assess which initiatives delivered the most impact.
Tax and Accounting Considerations
- Review Unrelated Business Income (UBI): Ensure any UBI is properly reported and taxed.
- Consider Year-End Purchases or Investments: If surplus funds exist, evaluate whether to invest in infrastructure, technology, or staff development before year-end.
As your trusted accounting advisors, we’re here to help you navigate these complexities and position your organization for success in 2026. If your charitable nonprofit is approaching the $2 million revenue mark or has received a significant bequest, let’s talk now to ensure compliance and avoid surprises.
