How to Properly Report Fundraising Income

Fundraising income requires careful tracking and reporting to comply with regulations. The specific reporting obligations depend on the nature of the entity raising the funds, whether it is a formal organization, an informal group, or an individual. Understanding the correct procedures is fundamental for anyone soliciting financial support.

Determining Your Organization’s Reporting Status

Recognized Tax-Exempt Organizations

An organization recognized by the IRS as tax-exempt, such as a 501(c)(3) charity, receives an official determination letter confirming its status. This status allows it to receive tax-deductible contributions but requires annual reporting to maintain the exemption. Failure to report accurately can jeopardize its tax-exempt status.

Informal or Unincorporated Groups

Fundraising by groups that are not formally incorporated or recognized as tax-exempt may still have tax implications. If an unincorporated group operates like a business, the income could be subject to tax unless it is used for a designated non-profit purpose. Members may need to understand their potential tax liabilities.

Individuals

Individuals often raise funds for personal needs, such as covering medical expenses or educational costs. This money is generally considered a non-taxable gift from the donor to the recipient. However, if funds are raised for a business venture, the money could be classified as taxable income.

For-Profit Businesses

For-profit companies may fundraise for charity in “commercial co-ventures,” where the sale of goods or services benefits a nonprofit. The money collected is reported as company revenue, and the amount donated to the charity is then claimed as a charitable contribution deduction. This allows the company to support a cause while adhering to standard business tax reporting.

Information and Records for Fundraising Activities

Tracking Gross Receipts

Tracking gross receipts, which is the total amount of money and property collected before any expenses are subtracted, is the foundation of fundraising reporting. Organizations must maintain detailed logs of the date, amount, and source of every payment. This comprehensive data forms the basis for all federal and state filings.

Identifying Quid Pro Quo Contributions

A quid pro quo contribution occurs when a donor receives a benefit in exchange for their payment, such as a meal at a fundraising dinner. The organization must provide a good-faith estimate of the benefit’s fair market value. Only the portion of the payment that exceeds the value of the benefit is a tax-deductible contribution for the donor, and the organization must disclose this information in writing.

Valuing Noncash Contributions

Noncash contributions, such as real estate, vehicles, or stocks, must be recorded as revenue at their fair market value at the time of donation. While some values are easy to determine, assets like art or real estate may require a formal appraisal. Proper valuation is necessary for accurate financial statements and for providing donors with correct information for their tax records.

Separating Fundraising Expenses

Fundraising expenses, the direct and indirect costs associated with soliciting contributions, must be carefully tracked and categorized. Direct costs include items like fees for a professional fundraiser or the cost of mailing solicitation letters. Indirect costs can include a portion of an employee’s salary if their time is split between fundraising and other duties.

Federal Reporting for Tax-Exempt Organizations

Tax-exempt organizations report federally using the Form 990 series, which are public documents that provide an overview of an organization’s finances and activities. The specific form an organization must file depends on its annual gross receipts. All Form 990 series returns must be filed electronically.

• Form 990-N: An electronic postcard for organizations with gross receipts normally $50,000 or less.
• Form 990-EZ: A shortened form for organizations with gross receipts under $200,000 and total assets under $500,000.
• Form 990: The full form for organizations with gross receipts of $200,000 or more or total assets of $500,000 or more.

Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities, must be filed with Form 990 or 990-EZ if the organization reports more than $15,000 in gross income from fundraising events and gaming. This schedule provides a detailed breakdown of fundraising revenue and direct expenses. The figures reported on Schedule G must be consistent with the main Form 990 to accurately reflect the nature of the funds received.

Reporting Rules for Other Individuals and Entities

Informal Groups

If an informal group without tax-exempt status functions like a business by selling merchandise or services, it may be required to file a business tax return. The net income of the group could be taxable. To avoid this, the group must maintain clear records showing that the funds were solicited for a specific, non-commercial purpose and used exclusively for that purpose.

Individuals

For individuals raising money, the key tax question is whether the funds constitute income. Money received from a crowdfunding campaign to cover personal medical bills or disaster relief is typically considered a gift and is not taxable to the recipient. The IRS does not classify these proceeds as income because they are given out of generosity.

However, if an individual raises funds to start a business or as an advance payment for products or services, the money is generally considered taxable income. This income would be reported on the individual’s Form 1040.

The platform used for fundraising, such as GoFundMe or Kickstarter, will report payments to the individual and the IRS on Form 1099-K. The federal reporting threshold has been subject to recent changes. For the 2025 tax year, a platform must issue a Form 1099-K if it processes more than $2,500 for a user. It is important to understand that receiving a Form 1099-K does not automatically mean the funds are taxable income. If the money was received as a personal gift, it is generally not income, but the recipient may need to account for the form on their tax return to explain why the funds are not taxable.

For-Profit Businesses

A for-profit business that conducts a fundraiser for a charity must report all related income. The money collected from customers is included in the business’s gross revenue on its standard tax return. The business then makes a donation to the charity and can claim a corresponding charitable deduction, which is subject to certain limitations. The business must maintain records of the donation, including a written acknowledgment from the charity.

State Registration and Donor Acknowledgement Rules

State Registration

Most states have laws regulating charitable solicitations that are separate from federal IRS requirements. These laws typically require any organization that plans to ask for donations from residents of that state to first register with a state agency. The specific requirements vary significantly from one state to another, and some have exemptions for certain types of organizations or for those that raise less than a certain amount of money.

Donor Acknowledgements

Charities must provide a written acknowledgment for any single contribution of $250 or more. The donor needs this document to claim a tax deduction. The acknowledgment must be contemporaneous, meaning the donor must receive it by the earlier of the date they file their tax return or the due date of the return.

The written acknowledgment must include the name of the charitable organization and the amount of the cash contribution. For non-cash donations, it must provide a description of the property but not an estimate of its value. The document must also state whether the organization provided any goods or services in exchange for the contribution and include a good-faith estimate of their value.