The best answer for a question like this is always to call the IRS directly. The phone number for tax-exempt organizations is 1-877-829-5500. I remeber reading an IRS Publication on this very subject, but I couldn't locate it just now searching the IRS's website. If you call, you can get an answer AND see if there's a printed pubilcation that can back up the phone answer.
We never suggested that there was a tax-dectibility to any PTO fundraising product sale. However, this year we did a fun run for our major fundraiser and we were absolutely able to announce that all donations were tax-deductible. Nothing murky here.
Yes, I'm fairly certain that no part of the purchase price for items like those in a catalog sale (or gift wrap or cookie dough or the like) is tax deductible.
Fact is that i'm actually certain, but I'm just hedging my non-lawyer, non-accountant bets.
I've been told the same as dragonflymom. When you go to something obvious - like a $100 per plate spaghetti dinner, the organization can tell you the tangible value of the item (dinner) and you are allowed to declare the difference as a contribution.
But on things like catalog sales, it gets murkier. The prices are high - but often you can't distinguish them from retail prices elsewhere. I can see the prinicipal is the same, but when I've asked, I've always been told the purchases (or 50% ) are not deductable.
My understanding has been that if you recieve something tangible for your money than it is not tax-deductible. But, if you pay more than the price for an item then the remainder is tax-deductible because it is, in effect, a donation for which you are recieiving nothing in return. Purchases of Yankee Candle, gift wrap, etc are not tax deductible. Tickets to a performance or event are not tax deductible unless you calculate the true cost of the performance, "normal ticket price", and tack on a little bit extra - $10 ticket price, 1/2 of which is a tax-deductible donation for example.
I have searched the archives and have not been able to find an answer to our question. We have recently applied for our 501c3 status and are awaiting our determination letter. The question has arisen on what qualifies as a tax deductible contribution. We know that any funds given during our start-up drive are tax deductible, but the confusion comes in on catalog sales. We had one tax accountant tell us that the profit margin on our catalog sales is indeed tax deductible; others have said no. We find the IRS is vague in their statement on anything over fair market value is tax deductible.
But, with Yankee Candle the catalog price is the same as the store price so therefore the fair market value would be the price in the catalog and consequently no amount of the purchase price would be tax deductible regardless of our profit margin. Is this correct? It is contrary to what our initial tax accountant stated. What about wrapping paper sales – they seem to charge so much more than what the wrapping paper could be bought at in a BJs, Costco, Sam’s Club, etc which would make the difference between purchase price and fair market value seem even greater than our profit margin. How does one determine fair market value of cookie dough?
So, what do other PTOs do – do you state that no part of a catalog sale is tax deductible? Do you state that the profit margin is the contribution part that is tax deductible? I have read that the IRS will no longer allow the catch-all phrase of “all contributions are tax deductible as allowed by the full extent of the law†and that you must explicitly state the tax deductible part. Can anyone point us to an IRS publication that touches on this subject? We would love to hear how other PTOs have tackled this issue.
