Fundraising

ElaineI (Georgia)
Posts: 33

Posted:

Good Morning,

So far you guys a have been amazing so I figured I would reach out yet again. First off is anyone in GA because maybe the laws are different here. My social committee wants to do some fundraising to be able to provide better events for our home owners. Does anyone know if there are tax libilites? I mean like a donation to have the company name on a banner or in a newsletter?

My Board seems to be pushing back at me and I am not sure why so I am reaching out to see if anyone knows something I am not being told.

WendyM5 (North Carolina)
Posts: 1,522

Posted:

depends on how much money is raised. The IRS wont' give a crap about $500, but if you raise $50K they might start caring.

vis ta vie

ElaineI (Georgia)
Posts: 33

Posted:

Quote:

Posted By WendyM5 on 04/08/2023 11:49 AM
depends on how much money is raised. The IRS wont' give a crap about $500, but if you raise $50K they might start caring.

If I raise 50K I am going into a different business.. LOL most of the money raised will go right around and be spent on community activities. I just am not sure of all the pushback I seem to be receiving. This is why I am concerned.

MichaelT21 (Arkansas)
Posts: 200

Posted:

Yes, there are tax liabilities.

Money raised for social activities falls outside of your association purpose, so it is taxable at 30% income tax. However, I have been told by a tax accountant that if the donations are directed donations (can only be used for a specific purpose) then they are tax free.

So if a real estate agent gives you $500 for movie night, that's a directed donation. If you sell advertising on your website, that's not a directed donation and subject to tax.

ElleN (Idaho)
Posts: 4,420

Posted:

ElaineI, is there any way this committee can split from its formal association with the HOA? Then it can raise funds anyway it wants without oversight from the board. It can use common areas to the extent the board lets any group use common areas. I think the following from your other thread bears repeating. It may explain why the board is disinterested.

Quote:

Posted By CathyA3 on 04/04/2023 11:47 AM
Re: the budget, keep in mind that every dollar that goes to the social committee is a dollar that is not available for things like maintaining and insuring the property, collecting the trash, cutting the grass, fixing the leaky roof on the clubhouse, and paying the community manager and the accountant for their work.

Given that many HOAs are underfunded to begin with, many boards view social activities as low priority compared with essential spending. One of the benefits of self-supporting social activities is that they won't be competing for money with higher priority items.

In the past people here have been open to a little support from the HOA for social events, using some vague clauses in the Declaration or bylaws about doing things for people's well being and so on. The conventional wisdom is that social committees, neighborhood welcome groups, and the like would do well to fund themselves without the use of HOA funds and without seeking a status that is under the umbrella of the HOA corporation.

MichaelT21 (Arkansas)
Posts: 200

Posted:

I agree with ElleN.

We did a lot of social activities, paid for by sponsors, last year. This caused enomorous grief from a few angry homeowners. They were angry about the things that we bought (using donations), where the stuff is stored, the cost of storage, etc. My wife and I are considering starting up a "Friends of XYZ HOA" organization (501c(3) non profit), soliciting donations through the non-profit, and hosting social events that way. Then it is not an HOA issue.

ElaineI (Georgia)
Posts: 33

Posted:

Quote:

Posted By MichaelT21 on 04/08/2023 11:59 AM
Yes, there are tax liabilities.

Money raised for social activities falls outside of your association purpose, so it is taxable at 30% income tax. However, I have been told by a tax accountant that if the donations are directed donations (can only be used for a specific purpose) then they are tax free.

So if a real estate agent gives you $500 for movie night, that's a directed donation. If you sell advertising on your website, that's not a directed donation and subject to tax.

Ok So if a business gives us 150.00 donation to our block party that is Tax free? If a business pays 85.00 to advertise then we have to pay 30% tax on it?

ElaineI (Georgia)
Posts: 33

Posted:

Quote:

Posted By MichaelT21 on 04/08/2023 12:10 PM
I agree with ElleN.

We did a lot of social activities, paid for by sponsors, last year. This caused enomorous grief from a few angry homeowners. They were angry about the things that we bought (using donations), where the stuff is stored, the cost of storage, etc. My wife and I are considering starting up a "Friends of XYZ HOA" organization (501c(3) non profit), soliciting donations through the non-profit, and hosting social events that way. Then it is not an HOA issue.

I was looking at that as well because this way it would keep everything seperate but I didn't want to piss off the Board. I guess I thought that wanting to do good for the neighbors was going to be easy.

ElaineI (Georgia)
Posts: 33

Posted:

Quote:

Posted By MichaelT21 on 04/08/2023 12:10 PM
I agree with ElleN.

We did a lot of social activities, paid for by sponsors, last year. This caused enomorous grief from a few angry homeowners. They were angry about the things that we bought (using donations), where the stuff is stored, the cost of storage, etc. My wife and I are considering starting up a "Friends of XYZ HOA" organization (501c(3) non profit), soliciting donations through the non-profit, and hosting social events that way. Then it is not an HOA issue.

I don't understand being angry about creating community. Why should they care what you bought? They didn't pay for it. Wow maybe I am treading on some bad territory.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By ElaineI on 04/08/2023 12:21 PM
I don't understand being angry about creating community. Why should they care what you bought? They didn't pay for it. Wow maybe I am treading on some bad territory.

The board's hostility/indifference may be due to its already having enough on its plate complying with the statutes and covenants; hiring vendors; communicating with the HOA manager; making sure insurance is up to snuff; collecting dues from delinquent owners; arranging for an accountant to complete the annual taxes; running elections; more.

For all this, directors on HOA boards are paid not one cent.

I cannot blame any board that opts not to do one thing more than what it is required to do.

ElaineI (Georgia)
Posts: 33

Posted:

Quote:

Posted By ElleN on 04/08/2023 12:36 PM

Posted By ElaineI on 04/08/2023 12:21 PM
I don't understand being angry about creating community. Why should they care what you bought? They didn't pay for it. Wow maybe I am treading on some bad territory.

The board's hostility/indifference may be due to its already having enough on its plate complying with the statutes and covenants; hiring vendors; communicating with the HOA manager; making sure insurance is up to snuff; collecting dues from delinquent owners; arranging for an accountant to complete the annual taxes; running elections; more.

For all this, directors on HOA boards are paid not one cent.

I cannot blame any board that opts not to do one thing more than what it is required to do.

All I asked from the board was an address to mail the checks to and a w9 since some of the vendors had asked. The last thing I want to do is divid this community more then it is but it's looking more and more like we are going to have to do a Not for profit.

WendyM5 (North Carolina)
Posts: 1,522

Posted:

we spend hundreds sometimes thousands on social activities, generally with poor turn out.
when I reviewed our taxes over the last 5 years I saw nothing showing we paid taxes on any of this.
Sometimes we get grant money that pays for social activities as well and same thing.
pretty sure the IRS has more important things to do than go after an HOA with annual dues 50% less than what most people make in a year.

If I was in IRS I would focus my energy on how to recoop the most tax money and HOA's aren't in that category.

vis ta vie

MichaelT21 (Arkansas)
Posts: 200

Posted:

Quote:

Posted By ElaineI on 04/08/2023 12:13 PM

Posted By MichaelT21 on 04/08/2023 11:59 AM
Yes, there are tax liabilities.

Money raised for social activities falls outside of your association purpose, so it is taxable at 30% income tax. However, I have been told by a tax accountant that if the donations are directed donations (can only be used for a specific purpose) then they are tax free.

So if a real estate agent gives you $500 for movie night, that's a directed donation. If you sell advertising on your website, that's not a directed donation and subject to tax.

Ok So if a business gives us 150.00 donation to our block party that is Tax free? If a business pays 85.00 to advertise then we have to pay 30% tax on it?

That is my understanding. It partly depends on how you file taxes. We file ours with 1120 which has different tax rates than different types of filings. I wouldn't pay for the advice, but a quick question to whomever does your taxes would be worthwhile so you don't pay unnecessary taxes and can get the right paperwork in advance.

ElaineI (Georgia)
Posts: 33

Posted:

Quote:

Posted By WendyM5 on 04/08/2023 1:38 PM
we spend hundreds sometimes thousands on social activities, generally with poor turn out.
when I reviewed our taxes over the last 5 years I saw nothing showing we paid taxes on any of this.
Sometimes we get grant money that pays for social activities as well and same thing.
pretty sure the IRS has more important things to do than go after an HOA with annual dues 50% less than what most people make in a year.

If I was in IRS I would focus my energy on how to recoop the most tax money and HOA's aren't in that category.

How do you get grants? this is very interesting..

ElaineI (Georgia)
Posts: 33

Posted:

Quote:

Posted By MichaelT21 on 04/08/2023 1:38 PM

Posted By ElaineI on 04/08/2023 12:13 PM

Posted By MichaelT21 on 04/08/2023 11:59 AM
Yes, there are tax liabilities.

Money raised for social activities falls outside of your association purpose, so it is taxable at 30% income tax. However, I have been told by a tax accountant that if the donations are directed donations (can only be used for a specific purpose) then they are tax free.

So if a real estate agent gives you $500 for movie night, that's a directed donation. If you sell advertising on your website, that's not a directed donation and subject to tax.

Ok So if a business gives us 150.00 donation to our block party that is Tax free? If a business pays 85.00 to advertise then we have to pay 30% tax on it?

That is my understanding. It partly depends on how you file taxes. We file ours with 1120 which has different tax rates than different types of filings. I wouldn't pay for the advice, but a quick question to whomever does your taxes would be worthwhile so you don't pay unnecessary taxes and can get the right paperwork in advance.

Well then I guess business should donate to our events and in return we will mention them in our newsletters as a thank you.

MichaelT21 (Arkansas)
Posts: 200

Posted:

Quote:

Posted By ElaineI on 04/08/2023 1:42 PM

Posted By MichaelT21 on 04/08/2023 1:38 PM

Posted By ElaineI on 04/08/2023 12:13 PM

Posted By MichaelT21 on 04/08/2023 11:59 AM
Yes, there are tax liabilities.

Money raised for social activities falls outside of your association purpose, so it is taxable at 30% income tax. However, I have been told by a tax accountant that if the donations are directed donations (can only be used for a specific purpose) then they are tax free.

So if a real estate agent gives you $500 for movie night, that's a directed donation. If you sell advertising on your website, that's not a directed donation and subject to tax.

Ok So if a business gives us 150.00 donation to our block party that is Tax free? If a business pays 85.00 to advertise then we have to pay 30% tax on it?

That is my understanding. It partly depends on how you file taxes. We file ours with 1120 which has different tax rates than different types of filings. I wouldn't pay for the advice, but a quick question to whomever does your taxes would be worthwhile so you don't pay unnecessary taxes and can get the right paperwork in advance.

Well then I guess business should donate to our events and in return we will mention them in our newsletters as a thank you.

Elaine,

You got this!

MichaelT

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By ElaineI on 04/08/2023 1:38 PM

The last thing I want to do is divid this community more then it is but it's looking more and more like we are going to have to do a Not for profit [independent of the HOA].

Why is this a disadvantage?

MichaelT21 (Arkansas)
Posts: 200

Posted:

Quote:

Posted By ElleN on 04/08/2023 4:42 PM

Posted By ElaineI on 04/08/2023 1:38 PM

The last thing I want to do is divid this community more then it is but it's looking more and more like we are going to have to do a Not for profit [independent of the HOA].

Why is this a disadvantage?

The disadvantage is that there is a $650 filing fee to create a 501(c)(3) organization with the IRS. Plus additional work for bank accounts, etc.

More importantly, the "friends" group may not be able to have the property manager do e-mail blasts if the Board and "friends" group do not get along. Also sponsors are more familiar with HOAs than "friends" groups, so raising money may be harder.

ElleN (Idaho)
Posts: 4,420

Posted:

Quote:

Posted By MichaelT21 on 04/08/2023 5:54 PM
The disadvantage is that there is a $650 [edit: $275] filing fee to create a 501(c)(3) organization with the IRS. Plus additional work for bank accounts, etc.

To qualify as a 501(c)(3), the organization has to serve the public good. This is not the intent of the OP's social committee. I do not think the OP's group would qualify.

It's possible the OP could establish a not-for-profit that is not a 501(c)(3).

Whatever additional work there is to this is that much less work for the HOA (tracking donations or what-have-you; making sure tax law is being followed).

MelissaP1 (Alabama)
Posts: 13,836

Posted:

It should be noted that corporations, small business owners, or general public aren't always keen on the idea of donating money to a HOA. Especially if it's NOT their HOA AND they don't get a tax write off. It's like I scratch your back if you scratch mine situation. Of which the donar is NOT getting back scratches...

Have also seen where people think "Advertising for their business" is a good thing by having an event or advertising in a newsletter. That isn't really what happens for a HOA. It does for a regular business or event. However, for an HOA that's not a big draw or benefit. It's a waste of time, energy, money, and "free stuff" for them. You have a basic "captured audience" of just your members who show up or pay attention to the newsletter. That's not like your reaching out to a lot of people who can be potential clients.

Example: We have people in my HOA that uses one lawncare service. They will post on our FB page about this lawncare service they use. Well guess what? The other 100 + people all have their own personal preference and contracts signed. Plus many choose to do it themselves. I have yet to see where a good number of owners have signed up to use that lawncare service because of seeing it posted on our FB page.

There is a point where it is a "fantasy world" of people who want to donate. If you really look closely it isn't a benefit for either parties. The HOA has to pay taxes if they get the money. The Donation isn't a tax write off and they spend money on "free items" for the possibility of small # of possible clients.

Former HOA President