If you're regularly involved in fundraising events, you should be aware of how to handle fundraiser taxes. Generally, the proceeds received from fundraising aren't taxable. As such, the beneficiaries of these funds aren't required to report them on their tax return.
If these funds are placed in a bank account, however, beneficiaries may have to pay taxes on the interest earned from the account. People who organize fundraisers may also be liable for paying taxes. By learning all you can about fundraiser taxes, you can be prepared to protect your interests.
If you are the beneficiary of a fundraiser, you're not required to pay tax on the money raised on your behalf. If you organize a fundraiser for somebody else, it's your responsibility to collect and manage the funds properly until they are passed on to the beneficiary. This can be accomplished by opening a separate account for these funds and keeping accurate records of fundraising income and deposits. In the event you are audited by the IRS in regards to this income, you can account for these funds.
Any compensation received for your fundraising efforts should be regarded as earned income and reported to the IRS. If you had valid expenses from the fundraising event, you can deduct these from your taxes.
If you organize a fundraiser and place the proceeds into an interest-earning account, you could be held liable for paying interest taxes. The best way to avoid this is to place the proceeds from fundraisers into a non-interest bearing account. In contrast, the recipient of the fundraiser can save these funds in an interest-earning bank account with no tax liability on his or her part.
People who give to recognized charities, nonprofits or churches are entitled to a deduction on their taxes, although it may not be the full amount of their donation. Donors are allowed to claim the difference between the actual cost and the fair market value of legitimate expenses for a fundraiser, with the exception of raffle or lottery tickets which cannot be deducted at all. People who make donations without receiving any compensation in return may be able to deduct the full amount from their taxes.
If you give to an entity that doesn't qualify as a church or nonprofit, you could be liable to pay taxes. Large donations given to individuals can be classified as gifts by the IRS, which makes them susceptible to a gift tax. Currently, the IRS makes allowance for non-taxable gifts of up to $14,000 annually. Amounts in excess of $14,000 are deducted from a person's "lifetime exclusion" gift limit of $5.34 million. Once this amount has been exhausted, you can be held liable for paying a gift tax.
