Keeping It Legal: Essential Fundraising Rules for Nonprofit Organizations

There are currently over 1.5 million nonprofits registered in the United States.

Many of these are largely dependent on fundraising efforts such as public collections and sponsored events. While this might seem straightforward, the fundraising rules for nonprofit organizations can be quite strict.

If you’re in charge of a nonprofit, you’ll want to keep up with these rules to avoid getting on the wrong side of the law.

Read on as we tell you everything you need to know.

What Qualifies as a Nonprofit Organization?

You might think that any organization can set up, start donating money to noble causes, and call itself a charity. Unfortunately, from a legal standpoint, it’s not quite so simple as that.

Nonprofits enjoy very favorable treatment in terms of taxation compared to regular companies. This means that there are a lot of barriers to registration as a nonprofit. Otherwise, many companies would abuse the system to benefit from a lower tax burden.

In order for a company to qualify as a nonprofit, it has to pass what is known as the public support test. This means that it must receive a considerable portion of its income from the general public through one means or another.

However, the acquisition of this money is governed by many different rules. 

Fundraising Rules for Nonprofit Organizations

There are certain key areas in which fundraising rules must be closely attended to. Some of these relate to the ways in which no nonprofits collect money while others pertain to the tax situation of donors and whether a donation is deductible.

Below are some of the most important areas to consider.

Gambling

Many charities raise funds through various gambling events, such as bingo, raffles, and casino nights. This is permitted, but there are rules that govern this type of fundraising.

Most importantly, expenditure on such a gambling event is not considered a donation. Therefore, participants cannot write it off as a tax deduction.

There are also strict reporting and payment requirements that the charity itself must adhere to.

Registration

If you’re just starting up as a nonprofit, you will face certain restrictions until you become fully registered.

The most important of these relate to solicitation. In 40 of America’s 50 states, a charity cannot approach potential donors for money until they become registered as a nonprofit.

Registration requirements vary from state to state. 

Donor Names

Charitable donors reserve the right to anonymity. You should not publish their name in relation to their donation without their express permission.

Doing Charitable Work to the Letter of the Law

Fundraising rules for nonprofit organizations may be frustrating at times. However, they preserve the integrity of the charitable system and allow donors to be confident that the money they donate is going where they intend it to.

Ultimately, this results in a more productive system that sees more funds going to worthy causes.

If you’d like to know more about these rules or any other accounting requirements for nonprofit organizations, schedule a meeting with us today.