Do You Have to Pay Income Taxes on Money Received From a Fund-Raiser?

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Whether or not you’ll be paying income taxes after raising money for a fund-raiser will depend on whether your organization is truly a nonprofit organization. The IRS has strict rules about this, though you can apply to register your organization as nonprofit through what's known in IRS parlance as (501)(c)(3) status. This status also helps those who give to your fund-raiser to be able to write off their donations on their taxes.

Registering as a Nonprofit

In order to prevent your charity from paying taxes off the money you raise, register your organization as (501)(c)(3) before you hold a fund-raiser. The IRS requires a number of actions, including filing for an employer identification number by filling out a SS-4 form. Also, fill out Form 1023, which is due 15 months after your organization was created. This lengthy IRS form will require every morsel of information about your organization. In order to be accepted, you have to pay a fee that has to be attached to the form when it’s mailed to the IRS. At the time of publication, if your nonprofit organization has more than $10,000 in gross receipts over a four-year period, you pay $700. If your organization has less than $10,000 over this period, the fee is $300.

Forms 2848 and 8821

These last two IRS forms are only needed under certain circumstances and need to be filed with the previously mentioned forms, if required. Form 2848 is a "Power of Attorney and Declaration of Representative" and is only needed if someone else is representing you in the organization. Form 8821 is the "Tax Information Authorization" that allows any tax information you provide to be seen by someone you designate.

Determination Letter

This is the letter you’ll receive eventually from the IRS that proves your organization’s tax exempt status. It’s important to keep this on file so that you can prove that you don’t have to pay taxes on contributions. However, it might not arrive for a while. The IRS says you can still operate as a (501)(c)(3) organization in the meantime. If, though, your application is turned down, you’ll ultimately be responsible for income taxes on any contributions you receive during the year.

State Registering and Tax Exemptions

Depending on your state, you may have to register your organization before you can even start your fund-raiser, says USAFundraising.com. Check your state's chamber of congress website to see if you need to register. If your fund-raiser will be national, registering your organization through the Unified Registration Statement (URS) is an easier system than registering through your state. This website helps consolidate all information on nonprofit organizations nationwide. Your state may also provide state tax exemptions to nonprofit organizations. Check with your local state tax office to see if that’s possible.