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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16579
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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We are planning on forming a non-profit corporation in IL and

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We are planning on forming a non-profit corporation in IL and are going to help individuals and teams raise funds for athletic endeavors.

If we have 20 individuals who all come together to raise money for an event (let's say a fall festival, for example) and we raise $20,000.

1) Can the 501c3 keep a percentage (say 10%) in order to cover the costs of doing business?
2) When the remaining 90% is paid out to the 20 people helping with the event, how do we handle that? Do we simply write the individuals a check? Do they have to claim that on their taxes? Would it be considered a charitable donation on our part or some type of scholarship? Would they have to receive 1099's?

MyVirtualCPA :

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.

MyVirtualCPA :

Let's look at your questions one at a time.

MyVirtualCPA :

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.

MyVirtualCPA :

2) When you say that you are paying out to the people helping with the event, could you clarify?

MyVirtualCPA :

What are you paying these individuals for?

Customer:

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.

MyVirtualCPA :

When you pay out, you are giving to the actual athletes?

Customer:

Yes, or teams, depending on how they apply for assistance.

MyVirtualCPA :

That is not taxable to them, it's a gift

Customer:

Excellent!

MyVirtualCPA :

They would not receive 1099s for that

Customer:

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.

MyVirtualCPA :

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

MyVirtualCPA :

Does that make sense?

Customer:

Sure. That totally makes sense.

Customer:

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?

MyVirtualCPA :

No, you would just write the check

Customer:

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?

MyVirtualCPA :

Yes, you could

MyVirtualCPA :

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

Customer:

That's makes TOTAL sense.

MyVirtualCPA :

Okay, great

Customer:

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.

MyVirtualCPA :

Yes, you have to be careful how you use the funds. You have to keep your restricted funds separate from your general funds

Customer:

So do you recommend two checking accounts in order to separate them or simply keep records indicating which is which?

MyVirtualCPA :

Yes, I would do that

MyVirtualCPA :

and keep records, too

Customer:

Perfect! Thank you so much for your help!

MyVirtualCPA :

You're welcome

MyVirtualCPA :

Is there anything else you need?

MyVirtualCPA :

If not, please rate my response "excellent" so that I may receive credit for assisting you today

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