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Charity, Nonprofits & Fundraising

  • Some groups use product sales

  • Other organizations hire consultants

Charity fundraising is a big industry. There are charity fundraising companies that can help with almost any aspect of giving money you can imagine. Two popular but very different methods in using companies to help with fundraising are product sales and fundraising consulting. Fundraising product sales are typically used when a smaller amount of funds is needed while fundraising consultants are used when a charity needs to raise serious money. Also, many organizations who use product sales for fundraising are not legally considered a charity as defined by the Internal Revenue Service.

While the IRS provides a legal definition to distinguish charity fundraising, many people consider the purchase of a product that benefits any good cause to be "charitable fundraising" even though it truly is not. Usually groups who do not have charity status (defined as being designated by the IRS as a 501 (c)(3) tax-exempt organization which refers to the section of US Tax Code under which a charity is formed) use product sales as their only means of raising money. This type of fundraising can include bake sales, car washes and a wide variety of items purchased from companies that specialize in product fundraising.

What fundraising process is best for you? It depends on your needs and whether you are a legal charity or not. Fundraising product companies are usually considered wholesalers who sell your organization products that you in turn sell at retail. You will probably have to pay tax on that sale as well. The fundraising that results from the sale does not generate a tax deduction for the person who buys the product from you. That is one draw back if a charity uses this method to raise funds. Product sales have a place in the fundraising industry and are often an easier method of raising funds for smaller needs of schools, clubs, teams and other similar groups but are not the best form of fundraising for a charity.

Usually a 501(c)(3) nonprofit charity will use in-house staff or volunteers for much of their fundraising but will contact consulting firms when the charity does not have the expertise required for a complex fundraising project.  Consulting firms do not use product sales for fundraising and instead develop fundraising plans, strategies and materials to help a charity raise the funds it needs to advance its mission. Consultants also train charity staff, volunteers and board members, write fundraising letters and manage fundraising campaigns. 

As mentioned above, one advantage a charity has is that it can receive donations that generate tax deductions for donors. While generally not the motivation for a donation, a charity becomes a more advantageous place for fundraising as up to 1/3 or so of the donation can be deducted depending on the donor's tax bracket. This is why it makes far more sense for a charity to take advantage of this ability instead of relying on fundraising product sales. Again, the IRS has determined that even if a charity uses products for fundraising, only the amount paid over the fair market value of a product is tax-deductible and since most product sales are at market prices, there is no tax advantage.

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