Gala tickets, sponsorships and donations: what is tax-deductible for a Texas donor

The short version for Texas donors

Texas has no state personal income tax, so for a Texas donor the deduction question is a federal one. Under IRS rules, a gift to a qualified 501(c)(3) charity can be deductible, but when you receive something in return, such as dinner at a gala, generally only the part of your payment above the fair market value of what you received counts as a charitable contribution. Gifts to individuals, and the value of your volunteer time, are not deductible. A CPA should confirm how any of this applies to your own return.

I help connect donors, sponsors and volunteers with Leia's Kids, a national 501(c)(3) that supports children and families facing childhood cancer and hosts the annual Hope in the Kingdom gala. I am not a tax professional, and nothing here is tax advice. But donors ask me these questions every year, and the IRS publishes clear general rules that are worth understanding before you buy a ticket or write a check.

• Texas has no state personal income tax, so only federal rules apply
• A ticket or auction win is deductible only above the value you received
• Straight gifts with nothing in return are not reduced by any benefit
• Volunteer time and gifts to individuals are not deductible
• Keep written acknowledgments and receipts for everything

Start by confirming the organization qualifies

A deduction depends first on who receives the gift. The organization needs to be a qualified charity in the IRS's eyes, and a legitimate one will give you its legal name and federal employer identification number without hesitation. Leia's Kids publishes its EIN, 82-3212936, on its website. You can look up an organization through the IRS's Tax Exempt Organization Search, which the Federal Trade Commission also points donors toward.

Match the name exactly. Organizations with similar-sounding names are not interchangeable, and your receipt should show the same legal name you looked up. For a broader checklist, I wrote a separate guide on checking that a childhood cancer charity is legitimate.

Why a gala ticket is only partly a gift

The IRS calls a payment that is partly a donation and partly a purchase a quid pro quo contribution. A gala ticket is the classic example: you are giving to the cause, and you are also receiving dinner, entertainment and an evening out. Under the IRS rules, the deductible amount is limited to what you paid above the fair market value of the goods or services the charity provided.

The IRS's own illustration uses a concert ticket: if you pay $100 and the ticket's value is $40, the charitable contribution part of the payment is $60. A gala works the same way. IRS Publication 526 states the general principle for benefit events: you can deduct only the amount that is more than the value of the privileges or other benefits you receive.

The charity has a duty here too. According to the IRS, when a donor makes a payment of more than $75 that is partly a contribution and partly for goods or services, the charity must provide a written disclosure statement. That statement should give you a good-faith estimate of the value of what you received, which is the number you need.

• What you paid for the ticket or table
• Minus the fair market value of dinner and benefits received
• Equals the portion that may count as a charitable contribution

Auction wins, raffles and extra gifts on the night

The same principle applies when you win an item at a charity auction. If you pay more than the item is worth, the difference may be a contribution; if you pay roughly what it is worth, you have mostly made a purchase. A trip, a dinner or a piece of jewelry each has a value, and the charity can usually tell you what it is.

Many charity auctions list an estimated value beside each item. Write that number down, or photograph the display card, when you bid. If you win, ask for a receipt that shows both what you paid and the stated value. It takes a minute on the night and saves a guessing game in April.

A straight gift made during the evening, with nothing received in return, is different. If you give an additional donation during a gala and receive no goods or services for it, that gift is not reduced by any benefit. Ask the organization to acknowledge it separately from your ticket so your records are clear. Raffles and drawings carry their own rules; ask your CPA before assuming a raffle ticket counts as a gift.

Questions before the gala?

If you are planning to attend or sponsor Hope in the Kingdom and want to understand what you are buying before you buy it, reach out. I can help you get the information you will want for your records, such as what a ticket or sponsorship includes, and point your tax questions to the right person. If you are still deciding whether to sponsor at all, I cover that decision in whether a gala sponsorship is worth it for a small business.

Business sponsorships are their own conversation

When a company sponsors a gala, it usually receives more than seats: its name in the program, on signs or in announcements. How that payment is treated depends on what the company receives and how the sponsorship is structured, and the answer can differ from an individual's ticket. This is exactly the kind of question to bring to your accountant before you commit, not after.

Vendor sponsors raise a related question. If your business donates its own services, such as photography, entertainment or event production, remember that Publication 526 does not allow a deduction for the value of time or services. Your CPA can tell you how the cost of any materials or products you donate is treated.

Ask the charity for a written description of everything your sponsorship includes and its estimated value. That gives your CPA what they need to classify the payment correctly. If you do not have an accountant you trust, a Dallas-area CPA such as Joe Hockaday can walk you through how it applies to your business.

Volunteering, driving and gifts to individuals

Volunteers often assume their hours count. They do not. IRS Publication 526 says you cannot deduct the value of your time or services. It does allow certain unreimbursed out-of-pocket expenses directly related to volunteer work, such as gas and oil when you use your car, and it provides a standard mileage rate of 14 cents a mile for charitable driving. Keep a simple log of dates, miles and purposes if you drive for a charity. If you buy supplies for a volunteer project and are not reimbursed, keep those receipts as well, and note which event or program they were for.

Gifts to a specific person or family are a different matter. Publication 526 says you cannot deduct contributions to specific individuals, including contributions earmarked for a particular individual or family, and the FTC notes that donations to individuals are not tax-deductible. That is why money given through a personal crowdfunding page usually is not a charitable deduction. I compare the two routes in crowdfunding for a family versus giving to a charity.

The paperwork that protects your deduction

Good records are what make a deduction hold up. The IRS says a donor may deduct cash gifts only if they maintain certain written records, and for a contribution of $250 or more, it lists what the charity's written acknowledgment must contain: the organization's name, the amount of a cash contribution, a description of any non-cash contribution, and either a statement that no goods or services were provided or a description and good-faith estimate of what was.

In practice, that means keeping every receipt and acknowledgment, matching it to your bank or card record, and filing it somewhere you will find it at tax time. For in-kind gifts, keep a list of what you gave and its value; the Leia's Kids in-kind donation form, for example, asks for the items, quantity and total price. If an acknowledgment is missing or unclear, ask the charity for a corrected one well before you file, while the details are still fresh for everyone.

• Ticket and sponsorship receipts with the value of benefits stated
• Written acknowledgments for any gift of $250 or more
• Separate acknowledgment for extra gifts made on the night
• A mileage log for volunteer driving
• A list of in-kind items with quantities and values

Giving well, whatever the tax answer

Most of the donors I work with in Dallas–Fort Worth give because they care, and the tax treatment is a secondary question. Still, knowing the rules helps you plan: a straight donation, a ticket and a sponsorship each do different things, and knowing which part of a payment is a gift helps you give the amount you intended.

Planning also helps the charity. A donor who decides in January what to give over the year, whether as a monthly gift, a gala table or a Christmas family sponsorship, gives the organization something it can count on. At year end, ask the charity for a summary of your gifts; a well-run organization will be glad to provide one.

If you would like to support Leia's Kids, whether by attending the gala, sponsoring a table, sponsoring a family at Christmas or giving directly, reach out to me. I will make sure you know what each option includes, and you can take that to your CPA with confidence.

Questions people ask me