If my client runs a fundraiser and then donates everything except the prize winnings to a tax exempt organization, how would this be handled on his return? Would he include the proceeds from the fundraiser in his gross income and then put the donation on sched A? Would the cash that he gives out as prizes be taxable?
The prizes are taxable to the winners. If he ran the fundraiser under the direction of the organization, all the income and expense would belong to the organization, and he would have no tax consequence, unless he was paid for his work. If he just did it on his own, he would have Sch C income and and expense, and could deduct a charitable contribution on Sch A for the amount he gave to the organization.
Thanks for your help! Could this be put on 1040 line 21 (other income - not for profit activity) and then put the charitable contribution on schedule A?
No it is not line 21 for two reasons.
1. It is shedule C income as stated above, because he worked for it, and is subject to self employment tax. 2. It is NOT non profit and he must not claim that it is anywhere in his production. Non-profit ONLY exists when done by an organized group following specific rules - that is 501 (c) 3 for the most part. There is no dodge around these important national requirements for serving the public good in return for tax immunity.
