Posted on January 31, 2019 by Leah Grunewald -
Raffles are popular fundraisers for not-for-profits. But they’re subject to strict tax rules. State laws on nonprofit-sponsored raffles can vary significantly, but nonprofits must comply with federal income tax requirements linked to unrelated business income, reporting and withholding. Unrelated business income tax Nonprofits are required to pay income tax on unrelated business income (UBI), and funds raised by raffles often qualify as such. This is particularly true if you routinely hold raffles and they aren’t related to your exempt purpose. But raffle income can be exempted from UBI tax if the raffle is conducted with “substantially all” volunteer labor. The IRS’s unofficial guideline is that 85% or more of the labor should be volunteer. If relying on this exemption, make sure you keep records to demonstrate your level of volunteer support. Reporting obligations Raffle winnings must be reported when the amount is $600 or more and at least 300 times the raffle ticket price. You can deduct the amount of the ticket when determining if the $600 threshold is met. For example, you sell $2 tickets, and your winner receives $1,000. Because the winnings ($998) are more than $600 and more than 300 times $2, you’re required to report them to the IRS. File Form W-2G, “Certain Gambling Winnings,” with the IRS and provide it to the winner to show reportable winnings along with the related income tax withheld, if any. The winner should provide you with his or her name, address and Social Security number to include on the filing. Withholding requirements You should withhold income tax from the winnings if the proceeds (the difference between the amount of the winnings and the amount of the wager) are more than $5,000. If the winnings are in the form of a noncash payment (for example, an automobile or artwork), proceeds are the difference between the fair market value of the item won and the wager amount. When the value of a noncash prize isn’t obvious, obtain a valuation before the drawing. For a noncash prize with a fair market value of more than $5,000 after deducting the wager, you have two options: The winner could reimburse you for the amount of withholding tax or you could pay the withholding tax on behalf of the winner. Handle with care Raffles can pay off for nonprofits — as long as your organization satisfies the tax and filing requirements. Contact us for more information and assistance.
Posted on January 23, 2019 by Leah Grunewald -
Not-for-profits that direct and benefit from the actions of their volunteers can be held accountable if those individuals are harmed or harm others on the job. Lawsuits involving volunteers often arise from allegations of negligence or intentional misconduct, even when volunteers act outside the scope of their prescribed duties. Your organization needs to take steps to limit risk associated with unpaid workers.
Volunteers as employees
Your volunteer recruitment process should be almost as formal and structured as your paid employee hiring process. Develop job descriptions for open positions that outline the nature of the work, any required skills or experience and possible risks the job presents to the volunteer or your nonprofit. Once you have volunteer candidates, screen them according to the risks that might be involved based on your nonprofit’s mission, programs and likely volunteer activities. Some positions will pose few risks. For those, ask candidates to fill out an application and submit to an interview, and then check their work and character references. Positions that carry greater risks — such as work involving children, the elderly and other vulnerable populations, or direct access to cash donations — should involve more rigorous screening. This might include criminal history and credit report checks and verification of driver’s licenses, certifications or degrees.
Training and performance plans
Once volunteers are on board, provide training, supervision and, if necessary, discipline. Hold an orientation session to explain your nonprofit’s mission and policies. After volunteers have begun working for you, continue active supervision to verify that they understand expectations. To encourage professionalism and responsibility in your volunteers, consider devising performance plans that include goals — and rewards for achieving them. Such plans can also provide you with a framework to evaluate and dismiss volunteers who may be putting your nonprofit at risk by, for example, failing to follow safety procedures.
Role of insurance
No risk reduction plan is complete without insurance coverage. In addition to general liability, consider supplemental policies that address specific types of exposure such as medical malpractice or sexual misconduct. It’s also a good idea to have legal advisors periodically review policies and procedures pertaining to volunteers. Attorneys and financial advisors can help you determine whether your organization is doing all it can to reduce risks.
Posted on January 23, 2019 by Leah Grunewald -
Traditionally, Americans have supported charities not only for tax breaks and a vague sense of “giving back,” but also for a variety of other financial, emotional and social reasons. Understanding what motivates donors and how their motivations vary across demographic groups can help your not-for-profit more effectively reach and engage potential supporters. Money matters Asset protection and capital preservation traditionally have motivated many wealthy individuals to make charitable donations. And certain strategies — such as gifting appreciated stock or real estate to get “more bang for the buck” — may be particularly appealing to donors who make charitable giving a piece of their larger financial plans. But high-income donors sometimes have less-obvious financial motivations, such as a wish to limit the amount their children inherit to prevent a “burden of wealth.”
Warren Buffett, for example, plans to leave the vast majority of his wealth to charity rather than to his children. As he told Fortune, wealthy parents should leave their children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” To appeal to these kinds of donors, you may want to offer to work with the entire family so that they can begin a multigenerational tradition of giving. Social considerations Research by the Center on Philanthropy at Indiana University has found that younger donors — those between 20 and 45 — as well as wealthier and better-educated individuals are more likely to want to “make a difference” with their gifts. Those with lower incomes and a high school degree or less often donate to meet basic needs in their communities or to “help the poor help themselves.”
Donors of all stripes are motivated by the perceived social effects of giving. Research published in American Economic Review reported that donors typically gave more when their gifts were announced publicly. Similarly, numerous studies have found that people are more likely to give — and to give in greater amounts — if asked personally, particularly if they know the person making the appeal. These donors may want to make an altruistic impression, and some may seek the prestige of being connected with a well-established and admired nonprofit “brand.” Such individuals are more likely to buy pricey tickets to annual galas or join a nonprofit’s board to meet and socialize with others in their socioeconomic group or business community. Get — and keep — their attention There are probably as many motivations as there are donors, and most people have more than one reason to support a particular charity. To get — and keep — donors’ attention, perform some basic market research to learn who they are.
Posted on August 26, 2018 by Leah Grunewald -
Katy Sommer and Bill Mayer presented “Tax Cuts and Jobs Act of 2017” to Sheridan Road Financial Group on June 5, 2018. Here are the slides from that presentation