Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Throw a party, catch a tax deduction

Writing a check to your favorite charity is always a great way to support the organization and often results in an itemized deduction on your tax return. Throwing a fundraiser in your home for that organization can result in a tax deduction as well. You just need to make sure you follow some rules.

First, you’ll want to make sure the charity you intend to benefit has a 501(c)3 tax status. So hosting an event to directly benefit a local family in need won’t be deductible unless you set up a foundation. Many other types of non-profit organizations do not qualify because they do not have 501(c)3 status, such as civic leagues, labor organizations, social clubs and political organizations. Make sure your organization has the required non-profit status prior to beginning planning.

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Next, work to ensure the party generates more in donations than it costs. If you spend a few thousand dollars on the event and end up generating only a couple hundred dollars in donations, the IRS could determine the party was a personal expense for having a few friends over and disallow the deduction.

Make sure to save all receipts, including the cost of invitations, food, entertainment and cleaning. You won’t be allowed a deduction for any personal benefits such as re-landscaping your yard to make it more attractive to your guests or purchasing a punch bowl that you will keep after the party. You also won’t be allowed to take a deduction for the value of your time, no matter how many hours you spend organizing the event. If any of your personal possessions break or get ruined during the party, you won’t be allowed a deduction for that expense, either.

If you intend to sell tickets to the event, the charity will work with you to determine an appropriate ticket price. It will be your responsibility to let your guests know the fair market value of any benefits they receive (such as a meal) and the total deduction they can take for their contribution. For instance, if you sell tickets for $50 per person and the cost of the meal is $20 per person, the allowable deduction would be $30.

Request the charity provide a thank you letter after the event indicating the date and time of the event, the total amount raised to support the fact that more money was raised than was spent on the event and a statement that you did not receive any goods or services in exchange for hosting.

Keep these rules in mind and have a great time benefitting a worthy cause!

Contact us with any questions you may have.