Tax Law Requirements for Maryland Nonprofit Fundraising

Nonprofit organizations play a vital role in communities across Maryland, and understanding the tax law requirements for fundraising is essential for their success. Compliance not only ensures that organizations maintain their tax-exempt status but also helps in building trust with donors and the public. This article outlines key tax law requirements that Maryland nonprofits should be aware of when conducting fundraising activities.

1. Tax-Exempt Status
To be eligible for tax-deductible contributions, nonprofits must obtain tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. This agency designation allows organizations to receive tax-deductible donations and be exempt from federal income tax. In Maryland, nonprofits must also register with the Maryland Secretary of State and apply for a Charitable Organization Registration if they plan to solicit contributions from the public.

2. Charitable Solicitation License
Before conducting any fundraising activities, Maryland nonprofits must ensure compliance with state regulations regarding charitable solicitations. Organizations typically need to obtain a Charitable Solicitation License from the Secretary of State. This license must be renewed annually and requires nonprofits to provide financial information demonstrating responsible management of funds.

3. Sales Tax Exemption
Many fundraising efforts may include selling goods or services. Nonprofits in Maryland can apply for sales tax exemption if their sales are made in furtherance of their charitable purposes. However, if the sales are considered unrelated business income, the organization may have to pay federal and state taxes on the income generated.

4. Reporting Requirements
Maryland nonprofits must file annual financial reports with the State Department of Assessment and Taxation, which includes detailed information about their fundraising activities. Nonprofits must also file Form 990 with the IRS, which outlines financial details while providing transparency to the public about their operations. Failure to file can jeopardize tax-exempt status.

5. Fundraising Event Guidelines
When planning fundraising events, nonprofits must comply with certain guidelines. If the event includes a raffle or lottery, organizations must secure appropriate permits from local authorities. Additionally, they must adhere to regulations covering prize distributions and ensure the proper allocation of funds raised for charitable purposes.

6. Donor Acknowledgment
To comply with IRS requirements, nonprofits must provide written acknowledgments for contributions of $250 or more. This acknowledgment should include the organization's name, the amount of the contribution, a statement that no goods or services were provided in exchange for the donation, and the date of the contribution. Proper documentation helps protect both the donor and the nonprofit during tax filings.

7. Local Regulations Compliance
Specific counties and cities within Maryland may have additional fundraising regulations. Nonprofits should verify whether local ordinances or permitting processes apply to their fundraising efforts. Ensuring adherence to these local laws helps avoid legal complications that could arise from non-compliance.

In conclusion, understanding and adhering to the tax law requirements for nonprofit fundraising in Maryland is crucial for organizations to thrive. By securing tax-exempt status, obtaining necessary licenses, and maintaining proper record-keeping practices, nonprofits can effectively raise funds to continue their impactful work while remaining compliant with state and federal regulations.