Do You Have to Pay Taxes on Fundraiser Money?

Understanding the tax implications of fundraiser money is critical for individuals and organizations involved in raising funds. Whether for a charity, personal cause, or other fundraising activity, knowing if taxes apply can impact financial planning and compliance.

Taxability of Proceeds

The taxability of fundraising proceeds depends on the nature of the event and the recipient of the funds. For charitable fundraisers, proceeds are generally not taxable to the organization if it is a recognized 501(c)(3) entity, provided the funds are used for charitable activities and appropriate documentation is maintained.

In contrast, funds raised for personal causes, such as medical expenses or emergencies, are typically considered gifts, which are not taxable to the recipient. However, if the amount exceeds the annual gift tax exclusion—$17,000 per donor in 2024—the donor may need to file a gift tax return. While the recipient does not owe taxes, the donor’s tax obligations could be affected.

The method of fundraising also plays a role. Proceeds from crowdfunding platforms may be taxable if classified as income rather than gifts. The IRS emphasizes the importance of clear documentation to establish the nature of the funds. If deemed income, these proceeds must be reported on the recipient’s tax return, potentially impacting their tax liability.

Charitable vs. Personal Events

The distinction between charitable and personal fundraising events is crucial for determining tax obligations. Charitable events, typically organized by 501(c)(3) non-profits, can accept tax-deductible contributions and must follow IRS regulations, such as filing Form 990. Funds must be used for the organization’s mission, as any deviation could jeopardize tax-exempt status.

Personal fundraisers, often initiated to address individual needs, do not qualify for tax-exempt benefits. Contributions to these events are considered gifts, not tax-deductible donations. Donors should be aware that their contributions to personal causes are not eligible for charitable deductions on tax returns.

Using online platforms for personal fundraising introduces additional complexities. The IRS scrutinizes crowdfunding activities to determine whether funds are gifts or income, which affects the tax obligations of both donors and recipients. Maintaining detailed records is essential to address any classification issues.

Reporting Requirements

Understanding reporting requirements is essential for compliance. Charitable organizations must file Form 990, which provides an overview of financial activities and ensures transparency. Accurate completion of this form is critical to maintaining tax-exempt status, as errors or omissions can result in penalties or revocation of exempt status.

For personal fundraisers, reporting requirements are less stringent but still important to understand. While recipients of personal fundraising proceeds usually do not report these as income, complications arise if the funds are classified as taxable income. In such cases, individuals must include these amounts on their tax returns, which could affect their taxable income. Consulting tax professionals can help ensure accurate reporting and compliance.

Documentation and Recordkeeping

Maintaining thorough documentation is essential for both organizations and individuals involved in fundraising. This includes organizing receipts, donor information, transaction records, and correspondence. Adhering to standards such as GAAP or IFRS can improve the accuracy and credibility of financial records.

Comprehensive records are especially important during audits, as the IRS may examine the use of funds and the accuracy of reported information. Documentation of sponsorships, contracts, and in-kind contributions ensures all financial interactions are traceable and verifiable, providing a strong defense in case of scrutiny.

Potential Risks of Noncompliance

Noncompliance with tax regulations can have significant financial and reputational consequences. Organizations with 501(c)(3) status risk penalties for late or incomplete filings of Form 990, with fines ranging from $20 to $100 per day, depending on gross receipts, and a maximum annual penalty of $56,000 for larger entities. Repeated violations could lead to revocation of tax-exempt status.

For individuals, misreporting or failing to report taxable income from fundraising can result in penalties, including a 20% accuracy-related penalty on underpayments of tax due to negligence. Unreported income may also accrue interest, compounding the financial burden. Crowdfunding recipients who fail to clarify the nature of received funds may face audits and retroactive tax assessments. Beyond financial penalties, noncompliance can damage reputations, eroding trust among donors and stakeholders.