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More and more non-profits are turning to events as a major source for generating funds. As if event planning isn’t complicated enough, organizations also must properly present the associated revenues and costs in their financial reporting. To help, Doeren Mayhew’s Non-Profit Group shares accounting and tax considerations for fundraising events.
When you sponsor an auction, golf outing, “fun run” or similar event, the main goal is usually to raise funds. So it’s easy to understand why some non-profits mistakenly treat all of the revenues and costs as they would for other fundraising-related activities. But — and here’s the important part — certain amounts related to special events must be reported on financial statements in categories other than fundraising.
The amount charged to attend an event usually exceeds the cost-of-donor benefits, with the excess considered a contribution. Donor benefits are considered “exchange transactions” where a donor receives something (for example, a dinner or T-shirt) for the donation. These may be reported in a separate supporting category, such as cost of revenues, direct costs or in certain circumstances as a program-related expense, as there are several allowable options.
Non-profits have options for reporting most special events on their Statement of Activities:
These options apply to special events that are ongoing and major activities for the organization.
If the event is a one-time or incidental activity, amounts can be reported as gross (meaning revenues and expenses are reported separately, as in the options above) or net (expenses are netted against revenue and presented as a single amount) on the Statement of Activities.
Proper financial reporting also requires careful tracking of a special event’s transactions. For revenues, you’ll need to track the number of tickets sold, the price paid for tickets and the fair value as well as cost of the donor benefit.
For example, if 100 attendees paid $200 for a dinner with a fair value of $50, the contribution revenue is $15,000 ([$200 – $50] × 100 tickets). The exchange portion is $5,000 ($50 × 100 tickets).
You’ll also need to track the cost of the dinner. Say the dinner costs the organization $35 per person. The cost of direct benefits to donors is $3,500 ($35 ×100). Note the total cost of direct benefits to donors will typically include more than just the cost of the dinner — it would include costs for facility rental, decorations, etc.
Other costs could be reported as fundraising expenses. Expenses incurred for marketing the event, public relations, allocated employee time and similar costs qualify as fundraising.
Special events come with special tax reporting and compliance requirements, particularly if gaming is part of your event. Make sure to seek the assistance of a trusted tax advisor to help you satisfy all of the reporting requirements.
Non-profit fundraising events are a great way to cultivate support and attract new donors. But successful events take a lot of planning, financial support and hard work. Rely on Doeren Mayhew’s team of non-profit advisors in Michigan, Houston and Florida to help ensure your non-profit accounting and tax requirements are met so you can focus on hosting the best and most lucrative event possible.
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