August 10, 2023 •HoganTaylor
When organizing a special fundraising event, tax reporting might not be the first thing on your mind as a nonprofit organization. However, careful tracking of revenues and expenses and retaining related documentation is crucial for smooth tax reporting later on. This article outlines essential considerations for tax reporting during special events.
What to Report:
Tax reporting for events may necessitate different information than standard financial statement reporting. If your nonprofit follows Generally Accepted Accounting Principles (GAAP), special event revenue should be reported on financial statements. However, for tax purposes, certain portions of event ticket revenue may qualify as contributions. For instance, any amount paid for a ticket exceeding the dinner's fair market value (FMV) would be considered a contribution.
Moreover, tax reporting requires more detailed information, which is documented on IRS Form 990, "Return of Organization Exempt from Income Tax." If your fundraising event gross income and contributions exceed $15,000, you must complete Schedule G, "Supplemental Information Regarding Fundraising or Gaming Activities." This schedule includes reporting amounts for cash prizes, noncash prizes, facilities rental, food and beverages, and entertainment. If gaming is involved, additional multi-part questions must be answered, and you'll need to allocate income and expenses between gaming and fundraising events on Form 990.
Handling Donations and Donors:
While nonprofits typically record donated services or facilities and volunteer time according to GAAP, the IRS doesn't include them as contributions or expenses. However, goods donated for an event should be reported as contribution revenue and, when utilized, as expenses.
Informing donors about the tax benefits they receive from participating in special events is essential. Many donors might not realize that their deductible contributions are reduced by the FMV of the benefit they receive. Nonprofits should provide donors with a written statement detailing the value of the benefit they receive, reminding them to deduct only the payment amount exceeding the FMV. This disclosure is required for payments exceeding $75, and failure to do so may result in a penalty of $10 per contribution, up to $5,000 per fundraising event.
It is recommended, even if not legally required, to routinely provide special event participants with a statement of the benefits they receive. This not only eases their tax reporting but also fosters goodwill that may lead to future support.
When to Start Organizing:
Planning for tax reporting during the early stages of event preparation can save time and effort in the long run. Seeking professional assistance in collecting data and complying with IRS rules can be beneficial.
In conclusion, proper tax planning during special events is vital for nonprofits. By keeping track of revenues, expenses, and related documentation, adhering to IRS guidelines, and providing donors with necessary information, your organization can ensure a seamless tax reporting process. Early preparation and professional support can make a significant difference in ensuring your nonprofit remains compliant while continuing to make a positive impact on your community.
How HoganTaylor Can Help
The HoganTaylor Nonprofit team of business advisors and CPAs is comprised of former CFOs, controllers, and industry experts with extensive experience providing the guidance organizations need to lean forward again in their leadership. If you have any questions about this content, or if you would like more information about HoganTaylor’s Nonprofit practice, please contact Jack Murray, CPA, Nonprofit Practice Lead.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
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