Throw a Party, Grab a Tax Break
Hosting a fund-raiser can be tax-deductible.
EDITOR'S NOTE: This article was originally published in the May 2009 issue of Kiplinger's Retirement Report. To subscribe, click here.
As director of major gifts and planned giving at the Greater Twin Cities United Way, Barb Beard has always encouraged people to give generously to their favorite causes. But she also encourages them to give creatively.
RELATED LINKS | |
Row 1 - Cell 0 | Five Ways to Check a Charity |
Row 2 - Cell 0 | Baby-Boomer Retirement Center |
Row 3 - Cell 0 | More Advice on Your Retirement |
Writing a check is valuable, but hosting a charitable event in your home can have an even bigger impact. "These events run the gamut from a small dessert to a full-blown tented event with a live band at someone's lake home," she says.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Charities love fund-raisers because one event can result in many donations. For party hosts, fund-raisers are a fun way to help an organization. And if you follow IRS rules, Uncle Sam will help foot the bill.
You'll need to get in touch with the benefiting organization at least two months before you send out invitations. Most large nonprofit groups have guidelines to help people put together a fund-raiser.
You won't be able to take a deduction if the organization does not have 501(c)3 tax status, says Morrie Warshawski, a Napa, Cal.-based arts consultant and author of the self-published book The Fundraising Houseparty: How to Party with a Purpose and Raise Money for Your Cause ($20).
"I've had clients who have befriended someone who was in a terrible car accident, and who want to put on a fund-raiser to help pay for medical costs," Warshawski says. "But unless you can somehow set up a foundation, you can't take deductions when the money is going to a specific individual."
In many cases, the benefiting organization will take care of all the expenses and ask you to provide a tax-deductible donation in advance that covers the expected costs. This arrangement requires far less paperwork than tracking the expenses yourself. On the tax form, a sponsorship is considered a cash contribution, rather than a non-cash contribution.
Get Help From the Charity
No matter how the organization wants you to handle the costs, it will likely offer advice and supplies, says Carli Franks, a senior associate for community fund-raising for the American Red Cross of Greater Chicago. "When people fill out our third-party fund-raising agreement and guidelines, we'll look it over and make sure everything's in line," she says. "If they're having a raffle, for example, we remind them they need a raffle license."
Most charities will work with you to determine appropriate ticket prices. However, it's your responsibility to tell donors the fair market value of any benefits they receive (such as a meal) and the total deduction they can take on a contribution.
To avoid raising red flags, you must be confident that the party will generate more in donations than it costs, says Thomas Ochsenschlager, vice-president of taxation for the American Institute of Certified Public Accountants. "If you spend a couple thousand bucks, and you end up getting less than that in contributions, the IRS might argue that this isn't a deductible expense," he says. "They might say it was just having a few neighbors over for a good time."
Save all receipts, including the costs of invitations, food, entertainment and cleaning. Warshawski also advises saving a copy of the invitation. "You want to be able to prove to the IRS that you really did host the event," he says.
Note that you can't write off personal benefits and the value of your time no matter how many hours you spend organizing the event. If you and your spouse host a fund-raising dinner and eat two meals with a value of $50, for example, you'll have to subtract the value of those meals before taking a deduction. Similarly, you can't write off a punch bowl you buy for the party but keep once the event is over. The same is true of any possessions that break or get ruined.
While fund-raisers can be costly, Beard says she's eager to see more people try their hand at such events. "It's a wonderful benefit for nonprofits, which normally don't have the kind of money to do these kinds of events," she says.
For more authoritative guidance on retirement investing, slashing taxes and getting the best health care, click here for a FREE sample issue of Kiplinger's Retirement Report.
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Donald Trump's Net Worth Hits $6.5 Billion, Despite Legal Woes
Boosted by Truth Social stock deal, Trump is thrust into the world’s wealthiest 500 people on the Bloomberg Billionaires Index
By Kathryn Pomroy Published
-
Six Tax Breaks That Get Better With Age
Tax Breaks Depending on your age, several tax credits, deductions, and amounts change — sometimes for the better.
By Kelley R. Taylor Last updated
-
Biden Proposes New Homebuyer Tax Credits
Tax Credits President Biden is calling for new middle-class tax breaks including a mortgage tax credit.
By Kelley R. Taylor Last updated
-
Will Florida Property Tax Be Eliminated?
Property Taxes A new proposal is raising questions about revenue generation in the Sunshine State.
By Kelley R. Taylor Published
-
States That Won't Tax Your EV
State Tax Most states impose additional fees on electric vehicles, but these states don’t penalize EV owners, and some also offer other tax incentives.
By Kelley R. Taylor Last updated
-
Tax Season is Here: Big IRS Tax Changes to Know Before You File
Tax Filing Tax deductions, tax credit amounts, and some tax laws have changed for the 2024 tax filing season.
By Kelley R. Taylor Last updated
-
Your Arizona Family Rebate is Taxable: What to Know
State Tax Thousands of Arizona families will need to report income from special child tax relief payments.
By Kelley R. Taylor Last updated
-
Families and Businesses Would Get Big Tax Breaks in Bipartisan Tax Deal
Tax Changes A new bipartisan tax deal could change the child tax credit, R&D expensing, and the employee retention tax credit.
By Kelley R. Taylor Last updated
-
Non-Refundable vs Refundable Tax Credits: What’s the Difference?
Tax Credits Refundable tax credits and non-refundable tax credits can be confusing. Here’s how they work and how each can help you when you file your tax return.
By Katelyn Washington Published