Wednesday, August 31, 2011

Tax Facts for Nonprofits

What's tax-deductible and what's not? Donors and supporters often make erroneous assumptions, usually in their own favor. It's important for nonprofit staff members to have accurate information. Here are some guidelines about a few common situations:
  • Donated services: Donated services and volunteer time are not tax-deductible for the donor/volunteer. A volunteer can deduct expenses related to his/her volunteer work, including parking expenses, mileage, or the cost of a book purchased to aid in the work. If you have a professional volunteer who really wants a tax deduction, your volunteer can bill you for the services, get paid, and then write a check back to your organization for that same amount.
  • Raffle tickets: In general, the amount you pay for raffle tickets is not deductible. Buying a raffle ticket is simply not a donation; it's a purchase of a gambling ticket (like buying a Lottery ticket), despite what may be said on the ticket itself or to what admirable charitable purpose the money is put. There's one exception: if you win something of significant value (cash, a car, a house), the cost of the ticket can reduce the gross amount of your taxable income from the prize.
  • Tickets to fundraisers: Similarly, buying a ticket to a fundraising event is also not considered a donation, but rather a purchase of an item of value. If the basic ticket is $25, and an individual purchases a special sponsor ticket for $250, then $225 can be counted as a donation for tax purposes. If a business becomes a sponsor in exchange for recognition on a program or poster (essentially, advertising), this is considered a business expense, not a charitable donation.
  • Auction purchases: Sorry to break the news, but when you purchase something in an auction fundraiser (live or silent), the amount you pay is not tax-deductible - unless you pay more than the actual value of the item, in which case the difference is considered a donation.
  • Thank you letters: Not all thank you notes are required by law - but you are legally required to send a receipt to a donor for any donation of $250 or more. Use this language: Organization is an IRS-qualified 501(c)(3) organization and your contribution is tax-deductible to the extent provided by law. No good and services were provided in exchange for your gift.
  • Which brings us to membership perks: Small gifts, such as pens or post-it-pads or cheap cloth bags, are considered of negligible value by the IRS. However, if your member receives tickets to a performance (or an item valued at $20 or more), the value must be deducted from the charitable donation - and this needs to clearly stated in your acknowledgement letter.
For more fascinating facts about taxes, check out the fun tax quiz which inspired this article, on Blue Avocado (a nonprofit website definitely worth following):

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