Fundraising Suggestions

We are in the planning stages of a new clubhouse. Many members would support if it did not increase dues. We would like to raise half the cost in fundraising with the rest of the cost being financed with minimal increase to members. All fundraising suggestions would be greatly appreciated.

DD -

How big is your annual budget? That is, how much do you collect each year in association dues?

The problem with fundraising activities is that the income received from such activities is what is usually considered as "non-exempt" income by the IRS. The tax laws for homeowners associations is covered in 26cfr1.528. Your dues are generally considered as "exempt function income" and is not taxed. Non-exempt income is taxed at 30% after deductions (including a $100 standard deduction). You must also meet certain tests, such as 60% of your GROSS income must be exempt function income and 90% of your expenses must be directed toward maintaining (and building) your property. If you fail to meet the tests, then ALL of your income (including dues) can be taxed.

If your annual budget is small, that will limit the amount you can raise each year and it may require you to raise money and save it over several years to have enough to build a clubhouse. If your annual budget is larger then it can be done more quickly.

Let's take an example. Suppose your annual budget is $250,000. That must be 60% of your GROSS income (exempt income + non-exempt income). That means you can raise up to about $166,000 each year for your clubhouse (250K + 166K = 416K; 416K X 0.6 = 249.6K, so 250K is slightly greater than 60%). However, the $166K will be taxed at 30% (after deductions). Your deductions may be quite small (only expenses related to raising the $166K can be deducted from that amount and the $100 standard deduction is peanuts compared to $166K). So, you might end up paying close to 30% of the entire amount. That would mean that you would have about $116K left to put aside for your clubhouse.

Considering the large sums involved, I would urge you to consult with a tax professional (CPA) knowledgeable in HOA taxes before I embark on such an ambitious project. Raising such large sums of money without the knowledge of tax laws could end up subjecting the association to large back taxes, plus fines and interest.

CAUTION - Bingo nights and casino nights - Gambling may be regulated in your state. May require a license or a permit and may be restricted to only charitable organizations (as defined by IRS). HOAs are not charitable organizations.

As always, check all applicable federal and state laws. Remember, if you violate any laws you place the entire association at risk - that means every homeowner.

One idea not mentioned - a comunity cookbook. Check out morriscookbooks.com