Starting from Scratch – Fundraising Laws and Tax Requirements
First-time fundraising organizers often come to us with baffled expressions, not knowing where to begin. In this special Starting from Scratch series, we’ll show you how to start from square one. In this first edition of Starting from Scratch, let’s look at fundraising laws and tax requirements.
Often times, the first questions people ask when they need to raise money are:
• “Am I breaking any laws?”
• “Do I have to register somewhere?”
• “What are my tax obligations?”
• “What about tax refunds for donors?”
• “Can I raise funds if my group isn’t registered?”
Let’s start from the top:
1. Am I Breaking Any Laws? – Fundraising Laws and Tax Requirements
This is a common concern – Will I unintentionally break a law I didn’t even know existed?
As a general rule of thumb, be honest. As most fundraising laws are designed to protect both donors and charities from fraud, being truthful with donors about all aspects of your organization can go a long way towards protecting you.
However, laws can differ from state to state, city to city and county to county. Thus, it’s crucial that you seek out the proper government services in your community to find out what you can and cannot do.
A great resource to learn more about fundraising laws is this article from GuideStar.org.
2. Do I Have to Register Somewhere? – Fundraising Laws and Tax Requirements
This depends on your state. Some states require you to register your organization before fundraising. To find out if your state requires nonprofit registration, you can get contact information from your local phone book, or on your state’s official website. In fact, many states provide all the information you need directly online.
If your organization is planning to fundraise nationwide, a great resource is The Multi-State Filer Project, also known as The United Registration Statement (URS). Rather than register with each individual state, an alternative is to use the URS.
3. What Are My Tax Obligations? – Fundraising Laws and Tax Requirements
If your organization does not have tax exempt status, it has the same income and other tax obligations of any other organization. However, many nonprofit groups can qualify for federal and/or state tax exempt status.
For federal tax exemption, you need to apply for 501(c)(3) status with the Internal Revenue Service (IRS). To find out how to do that, and learn more about your tax obligations, check out this IRS resource.
You can also find additional information in this article on getting nonprofit status.
You may also qualify for tax exemptions within your state. How do you find state information? Run a search in a search engine like Google, Yahoo or AOL for “<state> tax information”. For example, if you live in Kansas you would type in “Kansas tax information” (without the quotation marks).
A great resource to check out is this article from About.com.
4. What About Tax Refunds for Donors? – Fundraising Laws and Tax Requirements
A “tax deductible donation” means that donors can claim their donation on their annual income tax returns. In doing so, they may qualify for a refund on income taxes paid on the donated amount.
For your donors to claim a donation, you need to be a 501(c)(3) registered nonprofit (see #3 above). You also need to provide donors with a receipt that has your organization’s official name (the exact organization name under which you registered as a 501(c)(3)), and the amount donated.
For detailed information on what your donors will need come tax time, check out this resource from About.com.
5. Can I Raise Funds if My Group Isn’t Registered? – Fundraising Laws and Tax Requirements
The short answer is ‘yes’. However, three main things to keep in mind are:
1. Always be honest and upfront about what you are raising funds for.
2. When in doubt, check it out. Laws and regulations can vary by state, county and city. Always check with your local government office before starting a fundraising campaign.
3. There are benefits to being registered, such as tax exemptions, donor trust, and being able to secure larger donations as donors will be able to claim their donations on their income tax returns.
• GuideStar.org – Connecting People with Nonprofit Information
• StepbyStepFundraising.com – Answers to Tax Questions
• FundraiseTaxLaw.org – Product Fundraising State Sales and Use Tax Information
• NonprofitLaw.com – Understanding Fundraising Law
• Better Business Bureau – Information for Nonprofits