Raffles are a great way to raise funds for your organization. Tickets are usually very cheap and even if they don't win, players consider the price of a ticket a donation to a good cause. But are you really ready to hold one? There are more rules than you might think. Here are five tips to keep your raffle on the up and up.
- Is it considered gaming?: According to the IRS, gaming includes "bingo, beano, raffles, lotteries, pull-tabs, scratch-offs, pari-mutuel betting, Calcutta wagering, pickle jars, punchboards, tip boards, tip jars, certain video games, and other games of chance." You can see that raffles are included in the definition of gaming and are bound by related laws.
- Licenses: Your raffle may need to be licensed. For instance, in my home state of Michigan I would need to fill out a raffle license found on the state government website with the charitable gaming division.
- Income: If you regularly hold raffles, money raised from them is considered unrelated business income (UBI) and may be subject to the UBI tax (UBIT).
- Taxes on prizes: Three factors that determine whether you need to pay taxes on prizes are the type of game, the amount of winnings and the ratio of winnings to the wager (ticket price in this instance). Prizes valued at over $600 and more than 300 times the ticket price will have to be reported to the IRS.
- Keeping it legal: To make this even more complicated, states will have different gaming laws and sometimes even jurisdictions within the state will have extra requirements. Go to your state's official website and search for terms like raffle, gaming and gambling which will bring up the rules and associated applications for your state. Also visit the link in the sources section below, Is Your Fundraising Raffle Legal in Your State?, for links to state listings for more info. You can also learn more at IRS.gov through Publication 3079, Gaming Publication for Tax-Exempt Organizations, and Publication 598, Tax on Unrelated Business Income of Exempt Organizations.
IRS Publications. Gaming Activities: Tax Exempt and Government Entities Divsion, 2004. http://www.irs.gov/pub/irs-tege/notice_1335.pdf
Renner, Joan M. Raffles-The Right Way, http://www.rennercpa.com/RAFFLES.pdf
Saxton, Audrey M. Is Your Fundraising Raffle Legal in Your State?, NALS: The Association for Legal Professionals, accessed July 2014.