Question: OK to carry funds for “general” expenses?

We expect to hold a school auction in March that will raise $40,000. We have always budgeted our money under a general education expense. Now one of our board members is saying we aren’t allowed to do that; it has to be allocated to a specific purpose before the end of June. Is this true?

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Advice from PTO Today

Elly writes:

It’s perfectly fine for your group to hold over funds for the next school year. Elly even recommends that groups do so whenever possible—all parent groups should start the year right, perhaps with a back-to-school bash or some sort of welcome event for families offered free of charge.

Now, is it good to carry a balance of $40,000? That depends. If your group has a large long-term goal—a new computer lab or playground, for example—and consciously decides to apply a portion of its money to that goal, then it makes sense to roll over the cash from year to year until you’ve amassed the finances. The IRS doesn’t limit the amount of dollars a nonprofit may keep on its books, and it doesn’t assess any penalty or fee for carrying funds from year to year. The key is to do so with a clear plan, rather than just leaving the money there for lack of discussion and decision.

Even if your group has a long-term goal, though, Elly doesn’t think you necessarily should put every penny into the piggy bank. Alternatively, it’s never a good idea to exhaust cash flow each June simply because it’s there. There’s a happy medium between being overly frugal and being a spendthrift when it comes time to decide how to use your group’s hard-earned cash.

If your group does bring in $40,000 at the auction, how can it best allocate those funds? Elly doesn’t think you should just lump an amount like that into an expense category as broad as “general education.” A more effective practice would be to break down that category into several specific line items, one of which can be “miscellaneous” or a rainy day fund. Think about any long-term goals, and agree on how much of this year’s earnings should be earmarked for each cause.

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