Fiscal sponsorship can be an effective way to grow and sustain your creative projects. Raising charitable donations is especially crucial for emerging and mid-career artists. However, many donors and grant makers prefer to give to a registered nonprofit organization for the purposes of tax deductions or oversight.
Engaging with a fiscal sponsor enables artists to meet these needs – without the full legal and financial responsibilities of managing a nonprofit organization. These responsibilities include working with a Board of Directors and adhering to federal reporting regulations.
In the United States, fiscal sponsors are federally registered nonprofit organizations that legally solicit charitable contributions from private donors and foundations. They provide oversight, and process contributions for sponsored artists to use as needed.
When researching a fiscal sponsor for your project, look for one with:
- A mission that clearly states all programs, related activities, and the community it intends to serve.
- A proven record of fulfilling all legal, federal, state and local tax and regulatory requirements. They must be able to provide documentation that verifies 501(c)(3) registration, incorporation, and proper Board oversight.
- Responsible management of funds with transparency and accountability.
- Infrastructure and staff that can provide a timely response to sponsored artists’ financial and administrative needs. These may include donation processing and acknowledgment and compliance with grant and government contracts.
- Clear guidelines on the artist/fiscal sponsor relationship. The contract should specify terms, expectations, payment schedules, and applicable enrollment and transaction fees.
The enrollment process for fiscal sponsorship varies by organization. Some fiscal sponsors enforce strict quotas and deadlines, while others have an open application process. Eligibility is based on whether your goals are aligned with the organization’s mission as determined by the Board of Directors.
Once you are fiscally sponsored, you may officially start fundraising! Sponsored artist donations are tax deductible and may include individual check or credit card payments, grant awards, corporate matching gifts, or stock. (Fiscal sponsors are unable to process cash donations.) Most artists do not pay additional taxes on this income because they can deduct their art-related expenses from it.
The donation process can be very simple:
- 1. Donors make their contributions payable to the fiscal sponsor, and earmarked for the artist.
- 2. The fiscal sponsor deposits these funds for an initial holding period.
- 3. The fiscal sponsor pays out the funds to the artist. A small processing fee (generally no more than 10%) is usually withheld from each contribution to cover the fees associated with fiscal sponsorship as well as administrative costs.
While some nonprofits are incorporated exclusively to provide this service, many fiscal sponsors in the arts sector also provide supplemental programming for their artists. A fiscal sponsor that prioritizes your professional and creative development can position you for the best chance of success.
For more on frequently used forms of Fiscal Sponsorship, a good, comprehensive reference is Fiscal Sponsorship: 6 Ways To Do It Right, Study Center Press (1993, 2005) by Gregory L. Colvin.