Very large-scale fundraisers, also called “capital campaigns,” are designed to raise investment capital for major projects. Capital campaigns may be used to finance large projects, for example the construction of new hospital wings or schools. When fundraising on a large scale, your average donation needs to be large.

Donations to capital campaign fundraisers may come from individuals, businesses, or even nonprofit organizations. Some nonprofits, called “supporting organizations,” exist for the sole purpose of collecting money and disbursing it to other organizations, usually for charitable purposes.

Brick Fundraisers

Brick fundraisers are held before the construction of a new building or a building addition. Donors “purchase” bricks at a high price, which are then stamped with the donor’s name or a dedication. Donors may also purchase fundraiser bricks to memorialize a late family member or friend. The bricks are used in the construction of the new building, usually in a prominently-displayed location such as an entrance wall.

In addition to planning the display bricks into the blueprints for the new construction, you will need to find a supplier for the bricks. Make sure to figure in the cost of the brick as well as the embossing when you determine the unit price of your bricks. Due to the relatively high cost of bricks, brick fundraisers are normally reserved for large-scale fundraising efforts.

Structure of Nonprofits

Nonprofit organizations come in all shapes and sizes. Some are organized with a traditional corporate structure, while others may operate more like a democracy in which members vote on policy.

Most nonprofits are run by a board of directors, which oversees business operations and makes decisions regarding fundraising and goals for the organization. This board can either be self-appointed or elected by members/employees of the organization.

Though nonprofits often seek volunteers to help with projects, nonprofits are run by paid employees. The IRS has guidelines limiting the portion of a tax-exempt organization’s earnings that can be paid to the board of directors in the form of salaries and bonuses. These limits prevent certain employees from profiting unfairly from charitable activities, and prevent nonprofits from shielding potentially taxable profits by transferring them to appointed directors.

Nonprofit Organizations and Tax Exemption

Nonprofit organizations must apply for tax exemption from the IRS under code 501(c)(3); it is not automatically granted when an organization is established as a nonprofit. The tax exemption granted under section 501(c)(3) only applies to federal income taxes, so NPOs are still liable for taxes associated with employees’ salaries, as well as other applicable state and local taxes.

Another benefit of being granted tax exemption under 501(c)(3) is that most donations to the organization are tax-deductible for the donors. For businesses or individuals facing a large tax liability, charity donations can offset that liability. Profit-seeking businesses pay exorbitant taxes on profits; tax-deductible donations are commonly used to eliminate the liability of taxable profits.

Not all charitable contributions are tax-deductible, just as not all nonprofit organizations are tax-exempt. Most charities will identify themselves as 501(c)(3)-certified, and potential donors are told whether their donations will be tax-deductible.

Particularly for capital campaigns or other large-scale fundraisers, offering tax relief for donors is crucial because you are seeking large donations. Donors are unlikely to give to your cause if there is no personal benefit. Tax-deduction can be enough of an incentive to recruit many donors for your cause.

Definition of 501(c)(3)

Many nonprofit organizations identify themselves as “501(c)(3)-certified.” The code 501(c)(3) refers to IRS tax provision 501(c), which lists the 27 types of nonprofit organizations that are eligible for tax exemption. Sections 503-505 of the IRS tax code include the requirements that companies must meet in order to be certified as tax exempt. The main requirement for tax exemption is that the majority of the revenue generated from the organization must be donated to a predetermined public or private interest. Even though they do not pay federal taxes, tax-exempt organization are required to disclose financial information to the IRS. The specific forms required for an organization depend on the organization’s annual revenue.

The code 501(c)(3) designates a specific subcategory of tax-exempt organization, including charities, nonprofits, schools, and churches.

Non-Charitable Activities

Nonprofit organizations are permitted to conduct some non-charitable activities, such as investing in stocks, in order to generate profits, but the majority of those profits, and the majority of the organization’s activities, must be dedicated to their stated tax-exempt purpose. The IRS has the right to monitor the organization’s financial records to assure that the required portion of company money is being used for exempt purposes.

Department of the Treasury

Internal Revenue Service

Notice 1340 (March 2005)

Tax-Exempt and Government Entities Division

This notice discusses federal tax reporting and income tax withholding requirements that apply to raffles conducted by organizations exempt under section 501 of the Internal Revenue Code. A tax-exempt organization that sponsors raffles may be required to secure information about the winner(s) and file reports on the prizes with the Internal Revenue Service. The organization may also be required to withhold and remit federal income taxes on prizes.

Reporting Raffle Prizes

“Raffle” Defined: In general, a raffle is considered a form of lottery. As such, a raffle generally refers to a method for the distribution of prizes among persons who have paid for a chance to win such prizes, usually determined by the numbers, or symbols, on tickets drawn. Generally, an exempt organization must report raffle prizes if (a) the amount paid reduced, at the exempt organization’s option, by the wager (the amount a person paid for the chance to win a prize), is $600 or more; and (b) the payout is at least 300 times the amount of the wager. The organization uses Form W-2G for this report.

Example 1: Wendy purchased a $1 ticket for a raffle conducted by X, an exempt organization. On October 31, 2004, the drawing was held and Wendy won $900. X must file Form W-2G with the IRS and give a copy of Form W-2G to Wendy.

A person receiving gambling winnings must furnish the exempt organization a statement on Form 5754 made under penalties of perjury stating his or her identity and the identity of any others entitled to the winnings (and their shares of the winnings.) When the person receiving winnings is not the actual winner, or is a member of a group of two or more winners on a single ticket, the recipient must furnish the exempt organization information listed on Form 5754, Statement by Person(s) Receiving Gambling Winnings, and the organization must file Forms W-2G based on that information.

The organization must keep Form 5754 for four years and make it available for IRS inspection. (See the specific instructions for Form 5754 for more information.) The exempt organization must file Forms W-2G with the IRS by the last day of February of the year after the year of the raffle. Use Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to transmit Forms W-2G to the IRS.

The organization must also issue Forms W-2G to prize recipients by January 31 of the year after the year of the raffle. Withholding Tax on Raffle Prizes Regular Gambling Withholding: An organization that pays raffle prizes must withhold 25% from the winnings and report this amount to the IRS on Form W-2G. This regular gambling withholding applies to winnings of more than $5,000. If the organization fails to withhold correctly, it is liable for the tax.

Example 2: Lou purchased a $1 ticket for a raffle conducted by X, an exempt organization. On October 31, 2004, the drawing was held and Lou won $6,000. Because the proceeds from the wager are greater than $5,000 ($6,000 prize minus $1 ticket cost), X must withhold $1,499.75 ($5,999 x 25%) from Lou’s winnings. If X fails to withhold $1,499.75 before distributing the prize, X is liable for the withholding tax.

View IRS Notice 1340 in pdf format.

When you set up your fundraising account, you should discuss with your bank the tax implications of your fundraiser. Your bank will be able to inform you about the latest policies and tax guidelines, so you can prevent your donors or your organization from assuming an unintended liability.

Donations to Nonprofit Organizations

Most donations to nonprofits or other 501(c) organizations are federally tax-deductible for the donor and untaxable for the organization, provided that the donated funds are used for the predesignated purpose. Donors should get a receipt for their donation for tax purposes. As stated above, state and local taxes may still apply to funds raised by nonprofit or other tax-exempt organizations.

Most nonprofit organizations are funded almost entirely by donations, some or all of which may be the result of fundraising activities. NPOs (nonprofit organizations) usually have accountants who assure that the proper taxes are paid and income is reported. Your accountant can also assist you in setting a goal and a budget for your fundaiser.

Inform Donors of Your Tax Status

You need to make it clear to your donors whether their donations are tax-deductible. Many donors will assume that any money they donate to a fundraiser is tax-deductible. But, in fact, only donations made to nonprofit organizations are tax-deductible. It is mandatory that you inform donors of your tax status before they decide to donate to your fundraiser. If you falsely represent yourself as tax-exempt for fundraising purposes, you will be required to pay back the IRS for your donors’ improper deductions and the associated penalties.

Gift Taxes

When you accept donations to your fundraiser, as noted above you must inform donors of applicable taxes, including gift taxes. In general, a gift is defined by the IRS as any money or item of monetary value that changes hands and is not repaid in kind. In general, any IRS-defined gift valued over $12,000 is subject to the gift tax. Thus, donors should be warned that any gift over this amount will be taxable.

Although donations made to nonprofit organizations are usually not subject to a gift tax, donations to personal or for-profit business use can be subject to a gift tax, which may be payable by the gift recipient. Gifts, including financial donations, made to any entity besides a nonprofit organization are not tax-deductible for the donor, and are taxable for the recipient.

Anytime a gift is made that is not entirely exempt under the annual exclusion limit ($12,000), it is subject to a gift tax and the donor is required to file a gift tax return.

Annual Exclusions

The gift tax does not apply to gifts under a certain dollar amount, called annual exclusions, which, as of 2008, was $12,000 per individual. The annual exclusion applies on an individual basis, so married couples are permitted to give double that amount jointly, or $24,000 per year.

Although, technically, the giver of a gift is required to file a gift tax return and pay any taxes associated with a gift, as a fundraiser you may be liable for any taxes that are unpaid by your donors. In general, it is easier to limit individual donations to whatever the annual exclusion is for that year.

Other Exclusions from the Gift Tax

As of 2008, there are other exclusions that may prevent donors from having to pay a gift tax.

• Individuals are permitted to gift a lifetime total of $1,000,000, in increments no larger than the annual exclusion, without paying a gift tax.
• Individuals are permitted to directly pay medical or education expenses for another person, in any amount, without paying a gift tax. If the funds are not transferred directly to the medical or educational organization, they are subject to annual exclusions and gift taxes.
• Individuals are permitted to make unlimited, untaxable gifts to their spouses also living in the US, even exceeding the annual exclusion. If the recipient of the gift is living outside the US, annual exclusions may apply.

To help keep accurate records of your earnings and expenditures, create a special bank account for your fundraiser. For tax purposes, you are required to keep the funds separate from anyone’s personal funds.

Your fundraising bank account can be in the name of the beneficiary, or you can give it a descriptive name related to the name of the fundraiser (Example: The John Smith Kidney Fund).

If you or your organization do not have an accountant on staff, it is a good idea to get an account manager at your bank. Ask your account manager what kind of services the bank offers for fundraising. It may be possible for people to make donations directly to the bank. You should also find out whether the bank has a web site that would allow people to donate to your account online using a credit or debit card. The bank is not only a great source of information on taxes, but it can make donating a lot easier by offering more donation options.

Types of Accounts

There are various types of bank accounts from which to choose. Your bank may recommend that you put the funds you raise into a trust account or other type of savings account. A trust account is an account controlled by a 3rd party (i.e. a bank) for the benefit of the account holder.

In almost all cases, you are not permitted to earn interest income on donated funds. This means that whatever kind of account your bank recommends, it must be non-interest-bearing. Most bank accounts (except “no-frills” checking accounts) have potential to earn interest. It is incumbent upon you to notify your bank of the nature of your fundraising activities, as well as your nonprofit status, to assure that interest is not automatically added to your account.

While You’re at the Bank…

While you are setting up your fundraising bank account, use the opportunity to get information from your bank. The bank will not only be aware of the federal laws mentioned here, but they can notify you of current state and local fundraising laws and taxes.

Be sure to ask your bank for information about your tax responsibilities. Even nonprofit organizations must keep close track of all donations, because the deduction amount available to donors depends on the cost of any goods they received. In other words, if a donor pays $150 for a fundraising product that is worth $50, then only the difference of $100 is deductible. Though they do not pay taxes on fundraising profits, nonprofit organizations are required to keep detailed records of all fundraising activities, including how the funds are spent. Additionally, as of 2007, the IRS is strictly enforcing the law requiring all fundraisers to notify donors of their nonprofit status.

As mentioned in Fundraising Tax Information, if donors claim tax deductions on non-tax-deductible donations, the fundraising entity can be held responsible for repaying those deductions plus penalties to the IRS. Unless you are fundraising on behalf of a nonprofit organization, or have partnered with a nonprofit organization, donations made to your fundraiser are not tax deductible for your donors.

School-Run Fundraisers

Schools sometimes partner with charities to implement kid-run fundraisers. In these cases, the fundraising materials are usually delivered directly to the school, and the school explains the process to the students and distributes the materials. For example, a school may host a read-a-thon benefiting a Leukemia research organization. Schools may involve students in fundraising to benefit the school itself, or to benefit other causes.

Order-Takers

Order-takers are catalogs of products with attached order sheets. Volunteers ask potential donors to look through the catalog and prepay for items they want to order. The final order is placed after all of the order sheets and payments are turned in to the company. The school (or other organization running the fundraiser) receives a predetermined portion of the income from these orders, once the orders are complete and delivered.

With order-takers, there is a waiting period between placing orders and receiving the products. The products usually arrive by mail, and the volunteers who took the original orders use copies of their order sheets to deliver the products to their “customers.” In addition to order-takers, kids can help with a variety of types of product fundraising.

Order-takers are available for various lines of products, such as:

• Candy
• Candles
• Coffee
• Seasonal Merchandise
• Cookie dough
• Frozen pizza

Candy

Kids have been selling candy for their schools for decades. Candy sales are usually conducted on a door-to-door basis. Kids can engage in fundraising while walking around their neighborhoods. With candy sales, customers pay cash up front, so kids should be accompanied by an adult.

Customized packaging for fundraising candy is available from many distributors. It is still good practice to explain your fundraising cause to any potential donor. Even kids should be instructed to explain what they are raising money for.

A fundraising auction raises money by selling donated items to the highest bidder. The items sold in a fundraising auction can be almost anything, from art to clothing to vehicles. In addition to auction items, people can donate services to be sold in your auction.

Soliciting Auction Donations

The profit potential of your auction depends on the potential value of the items you convince people and businesses to donate to your cause. When you receive a donation, ask the donor to provide you with some written information about donation, including a short description and its estimated value. Offering to let donors display their business cards or other information about their businesses at your auction may convince some businesses to donate to your cause.

In order to solicit donations for your fundraising auction, you will need to contact possible donors and attendees, either in person or by writing a marketing letter.

Presenting Auction Items

Using the information you collected from your auction donors, make an auction guide for your guests to read while waiting for the live auction to begin. This will get people thinking about what items they will bid on. Auction items should be in order from least to most expensive.

When selecting an auctioneer, choose someone with charisma and a loud, clear voice. Even though your guests may read the descriptions of your auction items, it is up to the auctioneer to sell them. The auctioneer should highlight the positive attributes of the auction items continually while taking bids.

Some Types of Auctions

Silent Auction

In a silent auction, auction items are put on display and accompanied by paper bidding sheets. Bidders are free to walk around and continue bidding on multiple items discretely. In some cases, you may decide to include the majority of your auction items in the silent auction, but a few items (usually the most expensive ones) can be offered in a live auction at the end of the event. Not only does this draw attention to the most impressive auction donations, but it encourages bidders to stay for the duration of the event, and creates a natural cut-off for the silent auction.

Bachelor/Bachelorette Auction

In this type of fundraising auction, volunteer participants are “auctioned off” to the highest bidder for a date. The date should be prearranged and paid for by the charity. Bachelor/bachelorette auctions are typically reserved for large-scale fundraisers like capital campaigns because of the high overhead involved.

Wait for Final Bills to Set Fundraising Goal

Often when people are faced with lengthy medical treatments, such as chemotherapy, bills can pile up over time. If you hold a fundraiser at the beginning of the ordeal, you may find that your fundraising goal doesn’t begin to cover your total medical expenses. For this reason, it may be better to wait until you know what your final bills will be before you set a fundraising goal. This way, you have a better chance of raising enough money in one fell swoop to cover all of the bills.

Partner with a Nonprofit Organization

Donations made to an individual or a for-profit business are not tax-deductible for the donors. If you want to offer tax deductions to donors, you may consider partnering with a nonprofit organization (”NPO”). In this partnership arrangement, the NPO uses its tax-exempt status to collect deductible donations from individuals, and that money is then transferred to the hospital or health care provider holding the debt.

Donations

If you hold any kind of fundraiser as an individual or a for-profit business, the donations may be taxable under the gift tax law. Although technically the giver of a gift is the one responsible for paying a gift tax, as a fundraiser you may be inadvertently assuming that tax liability yourself.

Also, you should set up a special fundraising bank account to keep track of donations. Explain to the bank what your fundraiser is about, and a banker will be able to inform you about all applicable tax laws and donation limits in your area.

Reach Out to a Broad Audience

When seeking donors for your medical expense fundraiser, reach out to individuals as well as businesses. You can increase your income exponentially by tapping unlikely resources with good marketing techniques. In a fundraiser for medical expenses, friends and family can be the best resource for recruiting donors. You can ask people who know the beneficiary of the event to network with their own friends. Local businesses and even nonprofit corporations may be willing to donate to your event.

You should prepare two marketing letters to help seek donations to your cause: one for businesses and one for individuals. Though the two letters have the common goal of promoting your fundraiser, each letter will highlight different benefits of donating. By carefully tailoring your advertising materials to the specific readers you are trying to reach, you are more likely to elicit donations.

Federal Raffle Laws

Due to federal laws applying to lotteries and sweepstakes, it is illegal for individuals and for-profit businesses to hold raffles. Thus, raffles are only allowed for nonprofit groups and organizations.

Other regulations apply to raffles, as a type of lottery:

• No one under the age of 18 is permitted to participate in raffles or win raffle prizes.
• Ticket prices must be consistent throughout a single roll of tickets.
• You may be required to list prizes directly on the tickets.

Read more about the IRS guidelines regarding raffles.

State Raffle Laws

In some states, lotteries are illegal. In those states, raffles are also not permitted under any circumstances. In other states, a permit may be required before you can hold a fundraising raffle. As stated above, federal law permits raffles only for nonprofit fundraising purposes. If you do not have a certified nonprofit organization, you may not hold a fundraising raffle.

Raffle Tickets

Raffle tickets usually come in double rolls, so that each ticket has one duplicate. You give one to the ticket purchaser and keep the other. If the winner will be present, you can simply read the number from the winning ticket. If the winner does not need to be present, you need to get contact information from the entrants so you can notify the winner.

Raffle laws may require that you list major raffle prizes directly on your raffle tickets. There are also requirements regarding ticket pricing. Specifically, raffle ticket pricing must be consistent throughout a roll, so you must use a separate roll of tickets if you want to offer a discount for quantity purchases. For example, if your tickets are 5 for $10, they must also be $2 each.

Raffle Prizes

The prize for winning a raffle can be either a percentage of the raffle proceeds, or virtually any other prize. You may want to solicit a donation for your raffle prize; this way you can keep 100% of the profits. Before you start selling tickets, decide what the prize will be. If you haven’t picked a prize, nobody will want to buy tickets.

50/50

A 50/50 is a raffle in which the winner receives half of the raffle proceeds. This and other raffles can be fundraisers in themselves, or they can serve as easy ways to boost the profits of larger fundaising events.

The bake sale is an age-old fundraiser method involving the sale of baked goods, such as cookies, brownies, and pastries. While a bake sale may seem like one of the simplest fundraisers, there are certain key elements that can increase your profits and assure that your event runs smoothly.

Location! Location! Location!

The location you choose for your bake sale could make or break it. Be sure to choose an area with high foot traffic and good visibility.

If you plan to set up your sale in front of another business, ask the owner (or other manager) for permission. In many cases, the business will also benefit from the traffic created by your bake sale. Pay attention to what businesses are in the area and try to choose a location for your bake sale that will be mutually beneficial. For example, do not attempt to run a bake sale in close proximity to another business offering baked goods.

Obtaining Baked Goods for a Bake Sale

The most cost-effective way to obtain the baked goods for a bake sale is to solicit donations from supporters. Whatever group will benefit from the bake sale most should be willing to donate items for the sale. Don’t be afraid to solicit donations from various sources. Ask your friends and family to help out if needed.

Buy Bulk Ingredients

Another option for a bake sale is to buy bulk ingredients, such as large buckets of cookie dough, and then solicit volunteers to help you prepare them for the sale. You can either ask everyone to bake a little at home, dividing your bulk ingredients into portions, or find a person or business to provide a central location (like any kind of commercial or catering kitchen), where all of the baking can be done at once.

Pay Attention to Serving Sizes

If you are receiving donations from various sources, it will be difficult to keep the serving sizes uniform. You can decide whether you want your donors to present their baked goods in serving-size pieces, or whether you want to cut things up yourself as needed. If the items are to be pre-cut, be sure to let your volunteers know what size pieces you want. In either case, you should bring a knife in case anything needs to be cut or re-cut.

Determine the Variety of Items

Whether you are doing the baking yourself or soliciting volunteers, it is important to be clear about what you will offer at your bake sale. If you want to offer only cookies, make sure to inform all of your volunteer bakers before they start working. It doesn’t matter what you decide to offer at your bake sale; it is only important that you decide this beforehand and let everyone know.

If you want to assure a wide variety of donated items, make a sign-up sheet on which volunteers can tell you what they plan to bring. This way, other volunteers can see what you are already going to have, and plan their donations accordingly.

Set-up and Serving Materials

A bake sale is usually laid out with minimal presentation - table(s), tablecloth(s) (optional), and chairs should be the only fixtures you need. Make sure you have a place to display a sign (such as the front edge of the table), which will catch people’s eyes and bring in business. You should also prominently display information about your fundraiser and, if applicable, your organization’s goals.

Though serving materials may not be required, you should bring the following supplies:

• Knife
• Napkins
• Plastic gloves for handling food
• A wet kitchen towel
• Bucket of clean water with a few drops of bleach (for cleaning and sanitizing)
• A dry kitchen towel or paper towels
• Plastic forks
• Paper and pencils (to gather contact information from your supporters!)

It is better to have the supplies for whatever comes up, particularly for cleaning up unforeseen messes.

Cash Box

Depending on whether your prices involve fractions of dollars, make sure you bring ample change, including coins and one dollar bills. It may be easier to use only dollars and quarters.

Note: Money is usually very dirty, so whoever handles the money should not be handling food.