As a charity auction organizer, you want to maximize the promotional benefit to your item donors as well as the tax deduction to your winning bidders and donors.
In this post, you’ll learn what is and isn’t tax deductible for donors and bidders at your charity auction, and more!
Please note that we are not tax professionals. Consult your accountant for your specific situation.
Are donated auction items tax deductible for donors?
Cash sponsorships and donated property are tax deductible. Furnish your donors with an acknowledgement letter for their contribution.
The letter should contain your organization’s name, item description, and a statement that no goods or services were given in exchange for the donation. It is the donor’s responsibility to estimate the value of the item they donated, so no need to provide that for them.
By contrast to cash donations and donated property, donated services or the use of property (such as vacation rental time) are not tax deductible.
Are tickets and auction purchases tax deductible for biders?
Tickets and auction purchases are tax deductible only to the extent that the purchase price exceeds the fair market value of the item purchased.
As the organizer, you should furnish the fair market value of the ticket on your ticketing page, as well as the fair market value on auction items within the catalog.
Do you need to collect sales tax on tickets and auction items?
Generally, yes. You will need to collect all applicable sales tax on tickets and auction items. Just because your organization is exempt from paying sales tax, you are not exempt from collecting it.
Consult your municipality and state rules regarding collecting and remitting sales tax.
Is auction income taxable?
In some instances your auction income is considered Unrelated Business Income (UBI), meaning it was generated in a manner unrelated to your tax-exempt purposes.
There are many conditions that determine whether you will owe this tax, such as how often you throw such a fundraiser. You will need to consult your accountant for your situation.
What forms do you need to file with the IRS?
Check out Blue Avocado’s Sample Auction Reporting Checklist for Nonprofits.
What records do you need to keep?
Keep records of all donations and purchases for at least five years in case of an audit or if you need to look something up.
Additional Reading: The above considerations are spelled out in more detail in a post by Blue Avocado: Nonprofit Auctions: A Complete Compliance Guide and Sample Forms
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