Not all events that raise funds are fundraisers. If you operate a nonprofit, it's critical that you know the difference. Because holding an event that isn't properly identified and recorded appropriately in the general ledger could cause problems for you down the road.
Here are a few things you need to know.
Is the Event Tax-Deductible?
Nonprofits have lots of ways to raise money. Awards banquets, raffles, "fun runs" — there's no shortage of creative ideas.
Whether you call an event a "fundraiser" matters less than whether any of the amount guests pay to attend is tax-deductible. Organizations should always publish a full disclosure (on invitations, electronic media, etc.) of all information related to tax-deductibility. This is usually done through fine print with wording such as this: "Amounts over $xx are tax-deductible to the extent provided by law. (Organization name) is a 501(c)(3) nonprofit organization, federal tax ID number xx-xxxxxxx."Usually, the portion that is excluded from tax-deductibility is the tangible value of benefit received by the donor — e.g. the cost of the meal or gift bags.
How Should Fundraising Contributions Be Recorded?
If the event is deemed a fundraiser, all revenue is considered contributed income. Be sure you have a revenue line item in your chart of accounts to record "fundraising events revenue" that is separate from ordinary kinds of cash contributions. Each fundraising event should have its own class or other tracking mechanism, since disclosure on each event will be listed in the footnotes of the audited financial statements.
The revenue from events other than fundraisers, such as lectures, classes or community activities, should be in the "earned revenue" section of the chart of accounts (even though proceeds of the event can, and often do, directly support the organization's mission). If tracking the financial results of each event is required, having a separate class, customer/job or other tracking mechanism for each would be a good idea — though that's not a GAAP requirement.
And That's Just the Beginning …
Of course, fundraisers are just one revenue stream at a nonprofit. Others, like membership dues, are also governed by strict IRS regulations regarding tax deductions. Further proof that if you operate a nonprofit, you really should enlist the help of a bookkeeping services provider.