Special Events: How they affect your accounting & your donors

Monday, February 24, 2014

What is a special event? A special event tends to be larger and held annually. Your annual “Summer Golf Tournament” would be a good example of a special event. Galas, auctions, concerts, dinners, fitness challenges, contests, and sporting events can all be considered special events.

Whether you’re raising money or awareness of your mission, a special event can be an effective fundraising tool. You’ll raise money while interacting one on one with donors that share the passions of your organization. In addition, unlike large donations and grants that often restrict the use of funds to certain programs or activities, the donations associated with special events usually come without restrictions.

Special event accounting

While these funds are unrestricted, they do come with their own set of requirements. Sue Anderson from Accounting Web states that any “money raised is reported separately in the Statement of Activities in the unrestricted fund column.” This unrestricted fund column is also known as “above the line” or as income. You would also enter the direct costs this way so that the net amount is reflected correctly. Completing it in this way will also aid you when you begin completing your 990 form.

To accurately complete the accounting requirements of your special event, you’ll want to be sure and collect the following:

1. Total number of tickets sold (whether people attended event or not)

2. Total amount generated by ticket sales and donations made at the event (Gross receipts)

3. Good faith estimate of the retail value per ticket of the goods or services received

4. Total direct expenses attributable to the goods/services received, broken down into:

a. Cash and non-cash prizes awarded at the event
b. All facility costs (rent, etc)
c. Food and beverage costs
d. Entertainment costs
e. All other direct expenses

Helping donors track their contribution

A donation at a special event affects your donors differently than a donation via check or other donation form. When a donor writes a check, they know exactly how much they’ve donated to your organization. However, when a donor attends your special event, they may think that their entire ticket price is a donation. This is not a correct assumption.

Sue Anderson also states that “many times donors get something for their donation. This is known as a ‘quid pro quo’ and may be a dinner or auctioned items .” This is called an exchange value, and could also include entertainment such as a live band. For this reason, buying a ticket is not considered a donation in its entirety. To figure out the donation amount you need to take the ticket price minus the retail value of their experience. This will give you the contribution amount of your donor.

For example, if a ticket price is $30 and the retail value of the dinner they attend is $20, then your donor contributed $10. We’ve taken $30-$20=$10.

Stating a contribution amount

Because your donor can only claim the $10 donation amount, it is best to make them aware of this fact. You can do this by including a statement on the ticket itself that states the “retail value” of the experience your special event is providing. You should also include that this amount is to be deducted from their contribution total.

A statement could read “the retail value of this event is $20. Any amount paid above $20 is considered a charitable contribution, consult your tax advisor on yearend tax deductions.”

Tax deduction eligibility

For a donation to be tax-deductible:

it must be a donation of cash or property
must be contributed to a qualified tax-exempt organization
must be able to itemize
must have records of donation

Note: A promise to donate is not considered tax deductible until the donation has actually been made.

Auctioned items

If your donor purchases something at your auction, their contribution amount is similar to their ticket price contribution. For example let’s say I buy a string of pearls valued at $2,000 from your auction. I’m passionate about your mission, so I happily pay $4,000 for them. Despite my generosity, I am only allowed to consider $2,000 a contribution. That is the difference between the value and the amount I paid.

Extra credit

Read Sue Anderson’s full blog at
http://www.accountingweb.com/blog-post/accounting-non-profits-fundraising

Renata Poe Massie, Content Writer for Jitasa

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Special Events: How They Affect Your Accounting & Your Donors