How community groups and activists can fundraise like a nonprofit without the administrative headache.
If you’re an activist or a community leader, you’ve probably been there: You’ve just had an idea that you know will transform your community, whether planting a garden or slowing down traffic on your street. Your neighbors are on board, the vision is clear, and the excitement is palpable! Everyone is ready to roll up their sleeves and get to work.
Now it’s time for some fundraising… Those wooden garden beds or “slow, child at play” signs won’t pay for themselves. But do you really have to become a nonprofit—which can be expensive, time-consuming, and confusing in and of itself— to make an impact on your community?
Thankfully, the answer is no. Enter Fiscal Sponsorship, which allows you to fundraise like a nonprofit without the administrative overhead of becoming one. Below is a step by step guide to how fiscal sponsorship can help your project come to life. It’s the best of both fundraising worlds!
What is Fiscal Sponsorship?
Let’s begin with the basics. According to the Council of Nonprofits, fiscal sponsorship allows one organization to accept and manage funds on behalf of another.
There are two primary models of fiscal sponsorship:
The first is called comprehensive fiscal sponsorship. In this model, the fiscally-sponsored project becomes a program within the sponsoring organization. The sponsor takes on all legal, financial, and administrative responsibilities. This can be a wonderful option if your project will take several years or has employees.
The second option is pre-approved project sponsorship. (This is what ioby does!). In this model, the fiscal sponsor takes on the financial responsibility for a one-time project. They also provide insight, guidance, and resources to that project.
Perhaps most importantly: With fiscal sponsorship, you can receive the benefits of a 501c(3) without the administrative burden of becoming one yourself.
These benefits include:
- Simplified taxes: With a nonprofit fiscal sponsor, your unincorporated group can receive donations without paying income taxes. This can mean you receive 20-40% more of your donations, without assuming any legal risk.
- Tax-deductible donations: Similarly, a nonprofit fiscal sponsor can ensure your donors can deduct their contributions from their taxes. This increases the likelihood that they will give to your campaign. 501(c)3 status can also add legitimacy to your projects, as many donors feel more comfortable donating to an organization than an individual person.
- Streamlined accounting: Legally, it is important to keep personal and business expenses separate. A fiscal sponsor will keep all of your funds in a distinct account, which makes it easy to know how much you’ve raised and to file for taxes at the end of the year.
Will Fiscal Sponsorship Save Me Time?
As a project leader, you will still take the lead on all aspects of fundraising. Your relationships will be the engine that drives every step of the project.
However, rather than undertaking the complicated process of setting up a 501(c)3, fiscal sponsorship allows you to focus on the actual work that’s most important for your community, like transforming food scraps into soil-enriching compost or organizing a Juneteenth festival. Even if you eventually decide to become a nonprofit, which can take more than a year, fiscal sponsorship can help you receive the benefits of a 501c(3) in the meantime.
Fiscal sponsorship can also help flip the script on nonprofits competing with each other for resources, according to Community Centric Fundraising. Instead, this model encourages groups to share resources and collaborate. In fact, many nonprofits who have the capacity to receive tax benefits decide to enter into fiscal partnerships because of their collaborative, creative nature.
ioby offers Fiscal Sponsorship – and we’ll help you fundraise!
ioby is a nonprofit crowdfunding platform for community projects, and we also offer project-based fiscal sponsorship to groups that need it. As a fiscal sponsor, ioby makes sure you focus on what matters most: your community. We’ll take care of the logistics for you, including donor letters and annual tax information.
The first step is just to tell us about your idea. One of our on-staff fundraising experts will be in touch as soon as possible. Please note that ioby can only act as a fiscal sponsor for projects that you crowdfund with us.
If you already have a fiscal sponsor, that’s great, too! You can raise funds on ioby, which will be distributed to your fiscal sponsor and disbursed per your agreement with them.
Additional Resources on Fiscal Sponsorship
- Nonprofit Quarterly has a great overview of the potential of Fiscal Sponsorship, as well as a few red flags to watch out for when entering into a fiscal sponsorship agreement.
- The Minnesota Council for Nonprofits has a quick, fun video that walks you through a few questions to ask yourself before starting a nonprofit.
- Allied Media Projects has a wide range of resources for organizations seeking to launch their own projects with the help of a fiscal sponsor.
ioby is a national crowdfunding nonprofit, but we’re much more than that. We help connect leaders (like you!) with one-on-one coaching and support to raise the money they need from their communities to make our neighborhoods safer, greener, more livable, and more fun.
Have a great idea to get good done in your neighborhood? We want to help! Share your idea with us and we can help get you started.