Passionately supporting a charitable organization can be personally rewarding. How you provide the support can be as simple as writing a check or as complex as throwing a charitable event in your home. The former is easy to document and track for tax purposes, the latter is a bit more involved, but can have a significant impact for the charity benefactor. Keep reading for the dos and don’ts of how to party with purpose and get a valuable tax deduction.
Before we dive too deep into the party punch bowl, you should keep in mind the most important factor for deductibility: the charity benefiting from the party you are hosting must be a qualified tax exempt 501(c)(3) organization. The IRS has a useful online tool to search and confirm an organization’s tax-exempt status, which is searchable by organization name or employer identification number (EIN).
Important Point: Costs relating to political fundraisers, like contributions to political campaigns, are not tax deductible.
Hosting a party to benefit a tax-exempt organization doesn’t have to be an elegant affair to be deductible, however you should keep the following “Dos and Don’ts” in mind:
- Coordinate with charitable organization ahead of time.
- Keep copies of correspondence about the party and what the charity hopes to accomplish (fundraising goals or other charitable purpose(s)).
- Most large tax-exempt organizations have best practices or specific guidelines for fundraisers that benefit their organization.
- Consider keeping things simple.
- If you make a cash donation in advance of the party to cover the expected costs of the party and allow the charity to pay applicable costs you can simplify your contemporaneous documentation requirements (more on that below).
- Keep detailed records and receipts.
- Keep a copy of the invitation used to invite party attendees. The invitation should indicate the party has a fundraising purpose. If there is a ticket price for the event, attendees should be told what amount of their ticket price, if applicable, is tax deductible based on what benefits they will receive by attending (e.g., the value of meals to be provided).
- Written records you prepare (such as a check register) are not enough to support charitable contributions. Bank records, including bank statements, canceled checks, or credit card statements in conjunction with detailed receipts or invoices relating to the expenses directly related to throwing the party, should be maintained. Receipts should match bank records and must show the date paid or posted and the amount of the payment.
- If an attendee sends a thank you note for hosting the event, keep those with your records.
- Request the charity provide you with a formal thank you letter. The letter should include:
- The date and time of the of the event (which should tie to the invitation)
- The amount of funds your party raised. Your party should produce more donations than the amount you invested into the organization and execution of the party.
- A statement that you received no goods or services in exchange for hosting the party.
- Research how to make your party profitable.
Check out The Fundraising Houseparty: How to Party with a Purpose and Raise Money for Your Cause, by Morrie Warshawski
- Keep a time sheet.
- The time you spend planning and executing the party has no tax-deductible value. This is true even if you have a good friend that’s a party planner and you know their hourly rate. It doesn’t matter. The value of services provided to an organization is never tax deductible. Only costs directly connected with those services are deductible (e.g., the hard costs to throw the party).
- Deduct indirect costs.
- Indirect costs such as meals while planning the party are not deductible.
- If you buy party supplies, such as an ornamental serving dish, which you keep for personal use after the party, those items are not deductible.
- Go overboard.
- If your party raises less money than it cost to execute, the IRS could argue that the cost to throw the party is not deductible.
- Deduct amounts related to benefits you received at the party.
- Just like your guests must adjust their donation by the benefits they received at the party, so do you. Don’t forget to reduce your deduction by any meals or other benefits you received.
It may seem like throwing a party with purpose and taking a charitable contribution deduction for the party is more work than its worth; however The Tax Warriors® at Drucker & Scaccetti never shy away from legitimate tax deductions. Throwing a party already involves a lot of organization, taking a few extra steps will allow Uncle Sam to underwrite part of the cost to throw an event benefiting your favorite charity! If you need more information about substantiating charitable contributions, do not hesitate to call on The Tax Warriors. We are happy to help!