Fundraising is an important revenue stream for nonprofit and charitable organizations, and while these earnings are tax-free, there are Internal Revenue Service guidelines for the process of collecting, reporting and disclosing both earnings from donations and the donations themselves. Even volunteers working for charitable organizations have IRS guidelines affecting what they can deduct when donating their time to a fundraiser.
Permitted Fundraising Activities
The IRS recognizes the wide range of fundraising activities needed to generate money for nonprofit and charitable organizations. Most of these activities are allowable and tax-free as long as certain guidelines are met. Activities must not be trade that is regularly conducted. For example, a weekend bake sale qualifies as a fundraiser, while a church-run bakery does not. When a charitable organization is conducting draws or raffles, the award must be of more than nominal value in comparison to the entry fee. Any fundraising event that involves gaming activities may not be permissible.
The general rule the IRS follows s that the greater the gross receipts generated by a fundraising campaign, the greater the reporting requirements. While the level of detail for record-keeping is up to the individual organization, the IRS does require financial record-keeping meeting common requirements for supporting documentation, retained for periods specified by the IRS for your tax situation. Records covering your fundraiser may include cash register tapes, bank deposit slips and any other paperwork involving the intake of funds. Similarly, expenses for items related to staging your fundraising event are supported by canceled checks, cash register tapes and other receipts.
Volunteers Working on Fundraisers
Volunteers donate time to nonprofits, frequently to assist with fundraising activities. The donation of that time is not deductible in the same way as a cash or property donation, but some out-of-pocket expenses the volunteer incurs may be. These expenses must arise directly from the volunteer services and must not be reimbursed by the organization. Mileage, parking, uniforms, away-from-home meals and lodging may qualify as deductions by the volunteer, but these do not affect the reporting or disclosure related to a fundraiser.
The nature of the fundraiser will determine whether your contribution is tax deductible tax-deductible. For example, when children canvas neighborhoods with cookies or chocolate bars, you are getting something for the donation amount at its market value. In the eyes of the IRS, that doesn't qualify as a donation, since you receive something in return. Since the return to the nonprofit may be only a fraction of the purchase price of an item, a direct cash donation may serve both you and the nonprofit more effectively.
- National Center for Charitable Statistics: Quick Facts About Nonprofits
- Internal Revenue Service: Publication 526 -- Charitable Contributions
- Taxgirl: Ask the Taxgirl: School Fundraisers
- Internal Revenue Service: Internal Revenue Manual: Part 4, Chapter 76, Section 51 -- Fundraising Activities
- Internal Revenue Service: What Kind of Records Should I Keep?
A full-time content creation freelancer for over 12 years, Scott Shpak is a writer, photographer and musician, with a past career in business with Kodak.