If your business wants to organize a fundraiser or campaign for contributions, there are a few variables you need to contemplate. How do you plan to raise funds? Will you offer goods and services in exchange for donations? Do you want to hire people to help you? What kinds of donors will there be? All in all, whether or not you need to pay taxes on this income depends on the type of business you run and what you'll use the money for.
In General
You probably won't have to, so long as the activities of the fundraiser further the exempt purpose of the operation. When you throw a dance or bake sale to help generate benefactions, the IRS doesn't recognize that money as taxable income. A similar anecdote applies to individuals — so long as you donate less than $15,000, you don't have to pay the gift tax or report anything to the IRS. If you want to schedule an event to raise money, publicize this fact, as it may be an excellent way to draw in donors.
Several different kinds of taxes may apply to your business' activities. There are also a handful of guidelines to pay attention to if you wish to fundraise multiple times a year. In most matters, you'll need to identify as a qualified charity before you can ask for frequent contributions from state residents. Be sure to double-check whether or not this is a one-time occurrence. Otherwise, you'll have to pay some taxes.
Exemptions to the Rule
There are a few cases in which you'll owe taxes. Let's say your business wants to arrange a fundraiser to benefit a member of the community. Here, you'll want to keep all related money in a separate bank account. Otherwise, the IRS may find discrepancies in where the funds came from. If you hire people to run this event, they'll have to report their paycheck as earned income and pay those related taxes. That said, you, as the organizer, may deduct any associated expenditures.
An individual or company may decide to donate goods or services to you, also known as an in-kind donation. In this instance, if these items exceed a value of $250, you'll have to provide written documentation of what they were. Those that surpass $5,000 require you to complete Part IV of Form 8283. It's always a good idea to keep a detailed list of every benefaction you receive, small and large.
Should you plan to crowdfund for a specific cause through a website, that requires a little more preparation than you might think. Will you ask for gifts, or do you expect to offer donors something in return? If the latter, that'll likely fall under the category of Unrelated Business Taxable Income – more on that in the next paragraph. In this aspect, everything relies on what you're fundraising for and how you're asking for contributions.
Unrelated Business Taxable Income
It's crucial to consider whether all of this money falls under the category of Unrelated Business Taxable Income, also known as UBTI. Nonprofits and foundations run on charitable donations they receive throughout the year. For instance, when a university operates cafes and restaurants on campus, those revenue streams count as UBTI, since they don't contribute to educational purposes. Another aspect to note is that activities in the UBTI category must be ongoing. That means anything infrequent, like an annual dinner, won't count.
Even so, the law does make some exceptions to this rule. If you plan to throw an event put on by volunteers, or you sell merchandise and use the profits accordingly, the funds you raise won't be taxable. The same goes for any business that directly conveniences the members of the organization. All in all, whether or not your business falls under UBTI hinges on your situation.
It All Depends
Like many parts of running a business, the answer to this question depends on your situation. How you raise the cash and what you use it for are the most essential aspects to contemplate. Frequency matters as well. If you plan to campaign once a year for funds, you're probably in the clear. Otherwise, think about the various points of this article and see what relates to you. Always ask your accountant if you aren't sure.
