As we approach fundraising season, let’s review a few important financial aspects of fundraising events:
Know the value received. If you’re selling event tickets that cost more than $75 each, you’re required to tell the purchaser the value they’re receiving in exchange for the ticket purchase. A reasonable estimate is fine and it doesn’t have to match the amount the organization is paying for the event. Most nonprofits are able to get significant amounts of food and venue space donated, so the actual cost will not necessarily be the best indicator of the value the attendees are receiving. If your event is a concert or a dinner, think about what someone would pay to attend a similar concert or dinner if it was not part of a charity event. This is generally the best estimate of value received.
Track revenues and expenses. Of course you’re entering everything in the accounting system, but is it being entered in a way that allows for easy reporting later? Be sure to track the “value received” portion of the ticket sales separately from the donation portion (the excess of ticket price over value received). This is important for tax reporting purposes on the 990. You should also track the expenses in a way that allows you to review how funds were spent and how much money the event actually raised for the organization, net of expenses. Track each event separately so you can review each one in the future to determine what worked best.
Don’t forget in-kind donations. Cash is king, but in-kind is pretty nice, too. Be sure to thank your in-kind donors (facility discounts, free food, door prize/raffle/auction donors, volunteers) and record the value in your accounting records. These are legitimate costs of the event, and even if they were donated this year, you’ll need to plan for the cost next year just in case the vendors aren’t feeling as generous. It’s always important to include in-kind donations in your budgeting and accounting records based on a reasonable estimate of the value received (or invoice from the vendor, if possible).
Sponsorships are not the same as advertising. Advertising revenue is taxable – sponsorship revenue is typically not. The key difference between a sponsorship and advertising is qualitative language – best, favorite, top choice, etc. Be sure you’re not offering sponsors an opportunity to give a pitch for their product or display anything other than factual information on their banner at the event or on your website. Advise staff and board members at the event to avoid mentioning publicly how much they love a particular sponsor – it might be true, but you don’t want the perception that the organization has been paid to promote the sponsor. The consequence of advertising? Federal income taxes.
Raffles are gambling. We’ve said this before – raffle ticket sales are not donations. There are also very strict rules about raffles that should be considered before planning one for your event. Read our previous article about raffles for more information.
Sales tax may apply. In Texas, nonprofits can generally have two sales tax-free days each year. If your fundraiser event is one of them, make a note of it. There’s no report or permission required, but be sure you document in writing that this is one of your days just in case it’s questioned later. If you’ve already used up your tax-free days, be sure to charge sales tax on auction sales, t-shirts and other items you’re selling at the event. You’ll also need to file a sales tax report with the State Comptroller and remit the sales tax collected.
Let us know if you need any help planning for the financial side of your next fundraiser!
