Have a Tax Question? Ask a Tax Expert
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.
Let's look at your questions one at a time.
1) the organization can NOT keep any of the funds, if the funds are raised for a specific purpose. The funds MUST be spent on that purpose.
2) When you say that you are paying out to the people helping with the event, could you clarify?
What are you paying these individuals for?
We were wanting to coordinate the fundraising efforts of individuals who need the power of a group in order to raise money. Say you have a promising gymnast who qualifies to attend the Future Stars camp, but cannot afford it. And you have a basketball team that needs new uniforms and two baseball players that need pitching training. We want to facilitate putting them together as a group and holding events to raise money.
When you pay out, you are giving to the actual athletes?
Yes, or teams, depending on how they apply for assistance.
That is not taxable to them, it's a gift
They would not receive 1099s for that
That's what we were hoping to hear. We don't want kids who already need money to have to later pay taxes on it.
But, if you were to pay, say a hot dog vendor to sell hot dogs at an event, that person would be paid and issued a 1099
Does that make sense?
Sure. That totally makes sense.
Would we need to give the recipients of the gifts any type of tax forms to prove it was a charitable gift or simply write the check?
No, you would just write the check
Now, if the festival were just held to raise funds for the organization as a whole then, obviously, we could keep a percentage to cover our operating costs, correct?
Yes, you could
But, if someone were to give you $100 for a gymnast, that $100 would have to be spent on the gymnast you could not use any of that funds for operations
That's makes TOTAL sense.
I'm trying to wrap my head around the whole non-profit thing. I own a few LLC's, but have never ventured into this arena before.
Yes, you have to be careful how you use the funds. You have to keep your restricted funds separate from your general funds
So do you recommend two checking accounts in order to separate them or simply keep records indicating which is which?
Yes, I would do that
and keep records, too
Perfect! Thank you so much for your help!
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