In many states funds gained by fundraising are not taxable, but it sometimes depends on the organization. For instance, in Illinois, if your organization were considered to be religious, educational or charitable you would need to make an application for exemption ‘E’ status. This would entitle you to be exempt from incurring Use Tax in some cases.
In some states, religious groups must collect tax on sales, but they may have one tax free sale per year so long as they own what they sell and are selling to members of the public. The sale must not last more than three consecutive days and must be conducted by members of the organization.
In other states, any non-profit organization is exempt from tax. If schools hold a book fair in conjunction with the publisher and get a percentage of their profit for fundraising, they don’t have to pay tax on it, but the publisher must pay tax on their portion.
For individuals who deicide to raise money for a charitable cause, if you keep it under a few hundred dollars, then you can probably get away without any legal work - except that you must always keep a strict record of your budget and all financial comings and goings. However, if you are thinking in bigger terms, you may be wise to set up a charitable organization that will be exempt from taxes under the IRS Section 501 (c) (3).
The reason for this is that whatever money you get is considered part of your income and you have to pay tax on it yourself, even though you are not going to keep it. The IRS will want to know exactly how much you made and where it came from and what you did with it. If you can’t answer them, they will - to put it mildly - be annoyed. And you will be in hot water.
Another reason is that at least some people - and maybe most - will want a receipt so they can write that donation off on their tax. If you give them a personal receipt it cannot be legally used for that purpose. They will want to know how their money is going to be spent and you are accountable to them for it. If you have an organization, they will be able to verify your trustworthiness by looking at the books and other things that such an organization must have.
It would be a good idea to take half an hour to consult with an attorney about the whole business. If you follow his advice, it will protect you from possible problems further down the track.
Learn more at TechOSS Non Profit Resources
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