2020 changed the world in almost every aspect, and nonprofits were certainly affected. Accounting updates, fundraising, how to serve while not meeting with people in person, ways for volunteers to help with limited resources – these are just some of the issues nonprofits faced and still do today.
In this article, we look at the fundraising aspect for nonprofits – ideas for raising money in today’s Covid culture while considering tax regulations.
With the growing popularity of apps like GoFundMe, GiveSendGo, DonorBox, and Fundly, crowdfunding has become a viable fundraising source for nonprofits in recent years. With just a few clicks, donors can give to their favorite charity or to an emergency situation. And with no need to meet in person, wear a mask or separate by 6 feet, it was (and is) an ideal fundraising option when facing Covid.
Of course, you should be mindful of IRS regulations. Often times, crowdfunding it set up by an individual for a specific need and equates to no tax implications for the initiator. However, if your nonprofit organization chooses to use crowdfunding, you still must follow IRS regulations concerning charitable contributions and stay inbounds of your tax-exempt status.
Currently, there is very little guidance by the IRS for nonprofits using crowdfunding. However, we expect that to change soon. For example, California passed a law, effective January 1, 2023, to regulate crowdfunding platforms. We assume other states will too.
Also remember, most states have requirements for registering with them before soliciting money from their residents, which is known as charitable solicitation registration. You can find more about each state’s charity offices here.
Gifts in kind (GIK), or donations of services, products, utilities and more, help nonprofits further their missions and reach their business goals. And an online wish list is an excellent source for GIKs. A nonprofit lists specific items needed to help the people or animals it serves.
A well-known, long-running example is the Toys for Tots gift drive each holiday season. Toys for Tots is specific to donors about the things (or gifts) needed for the children it serves.
With social media and powerful online platforms, many nonprofits are now taking this concept and replicating it for their own purposes.
As with crowdfunding, do your research on tax regulations. (We can help with this!) In most instances, the tax responsibility for GIK donations fall to the donor. For good measure, though, your nonprofit might create a donation letter stating (1) the name of your nonprofit, (2) your appreciation, (3) a brief description of the GIK, (4) the estimated amount your group would have spent on the good(s) had the donor not given, (5) date and (6) how no money or services were exchanged for the donation.
(And while this article focuses on tax regulations, it is important to consider how to report GIKs in your financial statements. See this article where we outline the latest reporting guidance.)
Virtual Events for a Cause
For years, nonprofits relied heavily on in-person events as a fundraising endeavor. And then…Covid happened. Nonprofits scrambled to either replace “events” with other fundraising sources, or nonprofits reworked the physical events into online gatherings.
Nonprofits are now hosting virtual 5Ks, streaming gaming tournaments with a charitable focus, organizing galas over Zoom and giving real-time tours of their facilities over the internet. Isn’t technology grand?! And with the many Covid variants continuing to pop up, we don’t see these virtual gatherings going away any time soon.
So, what are the tax implications of online fundraising events?
First, consider “quid pro quo.” Are donors receiving goods and services – like food, dates, lawn care, etc. – as gifts for their contributions? If the element of “quid pro quo” exists for an event, it must be reported and will reduce the supporter’s amount of charitable contribution.
Second, virtual events often span nationally; supporters don’t have to be physically in the area to participate. Therefore, your nonprofit may need to register for charitable solicitation in states it has not done so previously.
Third, be alert to regulations concerning unrelated business income taxes (UBIT). Virtual events fall under the same UBIT rules as in-person events. So, make sure you can make the case for your online event as a related business income.
Fourth, any nonprofit hosting an event (online or in-person) where prizes and winnings are earned by donors should consult IRS Publication 3079, Tax Exempt Organizations and Gaming. Events like live gaming tournaments, virtual 5K races, online raffles and more may be subject to withholding requirements. As a nonprofit, you want to cross your t’s and dot your i’s with tax regulations in this area. (We can help with this!)
Tax Considerations in General
No matter how creative your nonprofit gets when fundraising, remembering the four basic tax guidelines below is key. Doing so will keep you out of trouble with the IRS and donors…usually. (We strongly recommend hiring accountants with nonprofit expertise like us.)
- Be aware of unrelated business income taxes (UBIT).
- Abide by state charitable solicitation registration requirements.
- Know your state and local tax code.
- Retain your tax-exempt status.
Morgan & Associates Knows Nonprofits
We love sharing good ideas with you, but we aren’t in the business of fundraising.
Our business and passion, though, is accounting – bookkeeping, financial reporting and, yes, taxes. And we have experts in nonprofits. We can help you know exactly how to proceed with a great fundraising idea so you raise money while staying in the confines of the tax code.
Complete the form below to speak with one of our experts.
And if you want more creative fundraising ideas, here are some resources.