Fundraising proceeds aren't considered a taxable source of income by the IRS. Fundraising tax laws define donations as gifts, which recipients don't need to report on their income tax returns. Although the money you receive from the fundraiser isn't taxable, you could still owe taxes, depending how you held the funds. People who work on the fundraising campaign may even face tax consequences.
Income Taxes on Donations Received
The IRS doesn't tax beneficiaries on the money received through fundraisers. If you are raising the funds for someone else, you'll want to keep the money in a separate bank account to avoid any discrepancies with the IRS. If you do not keep the funds separate, the IRS may question where the money in your account came from, especially if you get audited. As a precaution, maintain records of all fundraising deposits to show the source of the funds.
Although there are no taxes on donations received, there are taxes on any money you receive for raising it. If, for example, an organization pays you $200 to man a fundraising booth for them at a local fair, you must report it to the IRS as earned income. You may deduct any legitimate expenses associated with the fundraising. however.
Taxation of Interest Earnings
If the money raised gets held in an interest-bearing account, the owner of the account is liable for any taxable interest. For tax purposes, banks will credit the interest to the person or entity whose social security number or employer identification number appears on the account. If you want to avoid the interest taxes, you can talk to the bank about setting up a non-interest bearing bank account. If there is an interest-bearing account devoted solely to the fundraiser recipient, there is no tax liability.
Charitable Deductions for Donors
If you're raising money for a recognized 501(c)(3) nonprofit organization or an established church, the donors may qualify for a tax deduction. However, donors aren't necessarily able to deduct the full amount given. The price a donor pays for food, wrapping paper, magazines or even a car wash is not fully deductible. Donors can only deduct the difference between the purchase price and fair market value. For instance, purchasing a $12 roll of wrapping paper that carries an $8 price tag in the store entitles the donor to a $4 deduction. Raffle tickets or lottery-based tickets purchased through a fundraiser are never deductible, even losing tickets.
A donor can only write-off the part of the donation he gave without receiving anything in return. Donors may also deduct only contributions made to a qualified non-profit organization. If you donated money to help an individual pay their medical bills, your contribution is kind but not tax deductible.
If a donation isn't made through a qualifying non-profit or church, it could potentially result in a tax liability for donors. Since the IRS considers donations to an individual a gift, a very generous donation to a fundraiser could trigger the gift tax. At the time of publication, the IRS allows a single person to gift up to $15,000 to an individual each year without it affecting his taxes. If he gifts more than $15,000, he won't pay taxes, but any amount over and above that is subtracted from his lifetime exclusion amount of $5.34 million. For instance, if you donated $16,000 this year to a neighborhood fundraiser for a needy family's medical bills, the IRS will deduct $1,000 from your lifetime gift limit.
Go Fund Me Tax Issues
The development of websites like GoFundMe and Causes has created a surge in crowdfunding. These sites allow users to create a fundraising campaign and then easily share it through social media platforms. This has increased the number of people raising charitable funds, but it's also led more people to wonder about the potential tax liability involved.
Like donations made offline, those made online through crowdfunding platforms are still considered to be nontaxable gifts. The recipient need not pay tax on the money, but the giver needs to report contributions in excess of $15,000. Any fees charged by the crowdfunding company are legitimate fundraising expenses that you can deduct if you need to pay tax on income you received as payment for raising the funds.
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.