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Raising money (on your own) to help out

By Putnam Barber, Idealist.org

Because of a sorry history of abuses by people who are willing to prey on our charitable feelings, anyone who wants to raise money independently for a cause must be careful to handle the details correctly and be prepared to respond to any questions that might arise. (See Abuses in Fundraising for some discussion of these problems.)

Here is a list of some of the issues you will need sort out before you ask your friends, neighbors or total strangers to contribute to a cause.

Who is going to get the money that is raised? How will it be used?

Many well-known charitable organizations have policies about fundraising in their name. If you plan to pass the money you raise along to a group like the Red Cross, the YWCA or World Vision, you need to get in touch with them first to make sure you are meeting their requirements.

When you think about it, sad to say, it's no surprise that sleazy people have tried going door-to-door (or posting on the Internet) saying they're raising money for some familiar organization and then just keeping the money for themselves. As a result, such organizations want to know who is raising money in their name, and have control over the way the money is handled and what is said in the campaign to raise it.

They'll want to be sure that your campaign matches their needs and capacities. It would be embarrassing for you to have to go back to people and say "I wasn't able to pass your contribution along in the way I expected because they don't need help in that area." It's better to be sure in advance that the goals of your campaign are aligned with the cause you are trying to help.

Are there any laws or regulations I need to follow?

That's a hard one. Many states have what are called 'charitable solicitations' laws, but each state is different. (Some jurisdictions, for example, flatly forbid raising money for a charitable organization without an agreement signed in advance with the recipient organization.) Some cities and counties have similar regulations and it's often hard to find out exactly how they might apply to your plans.

The state rules are summarized at http://www.multistatefiling.org. That website was created to help big organizations that ask for donations in lots of states, but the state-by-state index of regulations will give you a sense of whether you will need to talk with your local charity-oversight officials before starting your campaign.

Are there any taxes that I might have to pay?

Since you are raising the money to pass along to someone else, it should not be considered income that you earned. However you will need to document that you kept the donated funds completely separate from your personal funds if the IRS or your local tax department should ask. You should keep careful records of donated funds and you may want to open a separate bank account that will be used only for this campaign.

Are the gifts people give to my campaign tax deductible?

That depends. First of all, it depends on the giver's own tax situation. Careful fundraisers never say "You can take a tax deduction." What they say (when it's true) is "You may be able to deduct this from your personal income taxes. You can consult with your tax adviser or review the IRS regulations that apply to your situation to determine whether or not a deduction is allowed."

But tax deductions can only be taken for certain kinds of gifts. If you know your campaign isn't raising money for a tax-deductible purpose, you should tell people right up front.

  • In order for gifts to be tax-deductible, the recipient organization has to be recognized by the IRS as a 501(c)(3) — or be an established church. (Churches don't have to register with the government, but they do have to meet certain standards about how they operate. If you have any doubts, ask.)
  • One result of this rule is that you must be associated with a recognized charity before you ask for any donations; you can't ask people to give you donations that you'll decide later how to use — unless you want to go through the process of setting up a new nonprofit organization, with all the complications in that process, before you start your campaign.
  • Gifts to individuals, no matter how urgent the need, are never tax deductible. This rule comes as a surprise to some, but it's very well established. (See, these tax tips about donations for individuals from the IRS).

Is there any simpler way?

That really depends on how much money you expect to raise, and how much preparation you are willing to make.

One straightforward solution to many of these issues is to ask your donors to make their checks out directly to the chosen charity or cause. (Be sure that you have permission to ask in the first place if it's needed — see the first note at the beginning of this page.)

More complicated, but still a way to avoid many of the pitfalls, is to make arrangements with a community foundation to set up a special fund dedicated to the cause you want to support. Then you can ask people to contribute directly to that fund, or offer to pass along their checks to that fund, leaving the administrative details to the foundation staff who have a lot of experience with this sort of thing. The Council on Foundations has a list of community foundations online at its website. (A community foundation will generally charge a small fee for administering these gifts, so you will want to explore that question carefully before proceeding.)

Also, of course, banks and churches sometimes set up accounts to receive donations for families who have suffered a big loss (like a house fire or a devastating disease). If helping out in that sort of situation is your goal, you can approach local institutions to see if they are willing to help.

Can I keep any of the money myself, to cover my time or expenses?

If you tell people you ask for money that you're going to do that, then it's probably ok. Some states' rules may require you to register as a "commercial fundraiser" if you keep any of the money yourself. The website http://www.multistatefiling.org has information about this question as well.

Of course, if you pay yourself from the proceeds of your campaign, you will be earning income and may owe taxes, need to keep track of deductible expenses, etc., and there may be business licensing fees, permits and other details to take care of.

What about enlisting other people to help with my campaign?

If you bring on other volunteers to help with your campaign, you will need some sort of "internal controls" to make sure that everyone sticks to your standards about how the campaign is run and how the money is handled. The usual way of handling one part of this problem is to have receipt books that automatically make duplicates that everyone can turn in with the money they have raised.

If you're going to start something that involves several other people, then you might think about setting up an internal group of trusted individuals to help you oversee the project, review progress and join in publishing reports on your successes. That way the responsibility for making sure the campaign runs correctly will be shared, and you'll have help if anything appears to being going off the rails.

If your campaign is going to go on for a while and involve a group of other people, but you don't want to set up a new nonprofit organization, then you might consider approaching an established nonprofit to act as your "fiscal sponsor". Fiscal sponsorship means that the existing organization adopts your work as a "program" under its wing. The sponsor is ultimately responsible for the program, so you would have to follow its rules. (Wikipedia offers an explanation.) Usually the sponsor takes a small administrative fee, but on the positive side donors to your project would be assured a tax-deduction if all the requirements of the IRS are met. And you would not have to worry about administrative details like tax forms, bank deposit rules, and accounting packages.

Last words

If you've come this far in this somewhat depressing list of issues, congratulations on your interest in helping out in the right way! Lots of people enjoy working independently to meet a need for resources when disaster strikes or a community improvement needs a boost. However it is also worth considering whether your efforts would yield greater results if you worked through an organization that continuously serves the cause you care about. You might find such an organization by checking the listings at http://www.idealist.org or by contacting your local Action Center. There's a map of Action Center locations on the Handson Network website.