If you’ve run a nonprofit for any period of time, the chances are your company has held fundraisers. While these events are often a lot of fun and raise a large amount of money at the same time, they also involve careful reporting of donations and the issuance of receipts. At Ernst Wintter and Associates, our nonprofit audit services and tax guidance can help you and your nonprofit stay compliant. In the meantime, here is a summary of the IRS requirements for charitable events. First of all, what is a fundraiser for tax purposes? According to the IRS, a fundraiser is any event that’s outside of your nonprofit’s normal activities, and which is intended to raise money. This can include door-to-door merchandise sales, gala dinners, auctions, family fun nights, and similar events. Many nonprofit organizations hold these types of events a couple times a year, and they tend to be popular with donors.
Second, you need to know what the fair market value (FMV) of the goods or services you’re exchanging for donations. For example, the meal you’re serving at the gala, retail price of auction merchandise, and price of admission to your special event. This knowledge serves two purposes. First, if the value of these goods or services are considered insubstantial by current IRS rules, then the value may not have to be disclosed. The definition of “insubstantial” changes periodically. However, at the time of writing it was as follows: If the FMV is 2% or less of the contribution amount it is insubstantial to a limit of $91. Alternately, for a payment of $45.50 or more, a nonprofit can give an insubstantial benefit of small items like coffee mugs or calendars, so long as it cost $9.10 or less. Penalties apply for nonprofits who fail to issue such receipts. Generally, the FMV amount is deducted from what a donor may be allowed to claim as an exemption on their taxes. If you need more advice on this issue, contact the firm who provides nonprofit audit services to your company.
Third, in many cases, the donor will need a receipt in order to claim tax deductions. In particular, any time a donor contributes $250 or more to your organization they are required to get a receipt from you. However, in this case the total does not aggregate, so if they were to give you $50 each month all year long, for a total of $600, then they wouldn’t be required to have the receipt. Donors are, however, required to have some kind of record for these small donations. Keep in mind though, not issuing receipts for small donations, even if they’re issued for aggregate amounts in January, could be considered ungrateful or unprofessional. It’s always a best practice to issue receipts.
Lastly, any time you issue receipts for fundraisers, you will need to state on the receipt that the FMV may not be tax deductible. Solicitations for donations are supposed to say that the donor may claim a deduction, because in certain tax situations a donor may be unable to do so. Here, it’s a matter of truth in advertising or solicitation of donations, and again there are potential fines for noncompliance. Also, keep in mind that donors will need these receipts before filing their taxes each year. As always, protecting yourself and your donors is of the utmost importance.
Have more questions about the proper issue of donation receipts and other nonprofit audit services? Contact Ernst Wintter and Associates, LLP for answers.