By Nina Berman on November 16th, 2021
When Should I Get a Fiscal Sponsor?
Fiscal sponsorship is an important tool for artists, arts organizations, and creatives looking to fundraise to support your work.
Fiscal sponsorship is a relationship between a 501(c)(3) nonprofit and a group or individual whose activities fall under the umbrella of that nonprofit’s overall mission. The group or individual is then able to use some of the 501(c)(3)’s benefits for themselves, including the capacity to accept tax-deductible donations.
For example, Fractured Atlas is a fiscal sponsor for individual artists and arts organizations. Our mission is to make the journey from inspiration to living practice more accessible and equitable for artists and creatives. We can extend fiscal sponsorship to creatives because their work furthers our mission.
Fiscal sponsorship can help you receive more donations (because some donors either prefer or are compelled to make tax-deductible donations), apply for a wider breadth of grants, and give you access to professional arts nonprofit workers who can provide guidance and support (depending on the capacities of an individual fiscal sponsor).
But when should you apply for fiscal sponsorship? Do you need to know exactly what it is you’re fundraising for before you apply for sponsorship? If you have money on the table waiting for you that requires tax-deductibility, is it too late to apply? First we’ll cover some examples of times when fiscal sponsorship isn’t the right choice and then explore moments when it can be a useful tool in your belt as a creative.
When There’s a Grant Deadline in the Next Few Days
Say you find a grant opportunity that you’re really excited for. You’re a good fit for what they’re looking for and the grant prize could really help you get to the next level with your work. The deadline is in a few days but you feel like you can buckle down and write the application within that time. The only issue is that they require applicants to either have 501(c)(3) status or a fiscal sponsor and you have neither.
This is a moment when fiscal sponsorship feels urgent and necessary. But unfortunately, the application for fiscal sponsorship can take several days or weeks depending on the fiscal sponsor you’re working with and their own time limitations. At Fractured Atlas, we’re usually able to review and approve fiscal sponsorship applications within a few days, but it can take up to two weeks.
Then, once you do receive fiscal sponsorship, Fractured Atlas needs to review grant applications for our own internal oversight requirements.
That means that while we can move with some speed and have rush options available for artists, a few days usually isn’t enough lead time to get fiscally sponsored to hit an upcoming deadline.
We understand that it’s frustrating to miss an opportunity because the pace at which fiscal sponsorship moves cannot be immediate. To avoid a surprise deadline that you aren’t prepared for, we recommend developing a year-round fundraising approach, which can include keeping an ongoing calendar of grants that you can apply for with more lead time.
When You Want to Fundraise or Apply For Grants in the Future
It’s very tempting to think that you should apply for fiscal sponsorship when you have a vague idea that you will fundraise or apply for grants at some point. Why not just get fiscal sponsorship so that when you do want it it’s already there? Won’t it be just another administrative task you can check off your list in advance?
But in reality, you’ll have an easier time filling out a fiscal sponsorship application when you have a more specific idea of the kind of work you want to be making or what you want to fundraise for. You might also find out as you move along your creative path that you don’t actually need fiscal sponsorship and that you’re paying monthly dues for a service that isn’t right for you.
When You Are Crowdfunding for Small Donations From Your Community
Tax-deductbility is a great perk to offer donors who are itemizing their taxes. But if you’re primarily soliciting small donations as part of a crowdfunding campaign, you might not need fiscal sponsorship. Small donations can add up in a big way for artists, but the tax deductibility benefit of a $20 donation for a donor isn’t necessarily worthwhile for them to go through the process of itemizing it on their taxes. Tax-deductibility is more meaningful for larger donations than it is for smaller ones. So if you’re expecting to receive smaller donations, those donors might not want or need their support for you to be tax-deductible.
You might still choose to crowdfund with a fiscal sponsor like Fractured Atlas or others because you like the platform, because the service fee works for you, or because you like the values of that organization. But while offering tax deductibility to your donors can be useful, it might not be necessary for smaller-scale donations.
When You’re Overwhelmed with Administrative Work
We’ve explored ways that artists are often compelled to become your own administrators in the interest of creating work that matters to you. Project management, budgets, rentals, tickets, donor management, and more can be overwhelming for artists!
You might wonder if fiscal sponsorship can help offset some of these administrative challenges. For some fiscal sponsors, it might! Different models of fiscal sponsorship and different sponsors within those models will offer distinct programs and lines of support to the artists and organizations they work with, some of which can help with administrative labor.
For example, you might explore Model A fiscal sponsorship, which gives more structural institutional support than Model C fiscal sponsorship (which is what Fractured Atlas offers).
If you’re finding yourself in need of admin support, working with a fiscal sponsor might help, but it will depend on the sponsor that you work with.
When You Have a Particular Project to Fundraise For
This is a great time to find a fiscal sponsor! The project you want to fundraise for could be as granular as a specific event or a performance or it could be as broad as an organization that you want to start or a community space you want to create.
When you have something concrete in mind that you want to create or produce and can communicate what you’re fundraising for clearly, fiscal sponsorship can help you bring that project to life.
You can use fiscal sponsorship to apply for grants that are either project-specific or for general operating costs. You can solicit individual large-scale donations from wealthy donors in your network who are going to be more interested in making tax-deductible donations rather than non-tax-deductible ones.
We’ve already addressed that you might not need a fiscal sponsor for a crowdfunding campaign, but if you’re doing a combination of crowdfunding and grant funding, you might want to keep all of your finances in one place rather than spreading them out through different institutions and platforms. In this case, a fiscal sponsor with a fundraising platform could be very beneficial!
When Someone Wants To Give You Money Right Now
Sometimes artists or arts organizations happen into an unexpected funding opportunity that requires tax-deductibility. It could be an individual donor or a grant that’s reaching out with discretionary funds or a corporate sponsor. Sometimes these gifts will be contingent upon fiscal sponsorship or 501(c)(3) status.
For example, Jagermeister was happy to donate funds in support of the Lesbian Bar Project, but needed those donations to be tax-deductible. So Lesbian Bar Project became fiscally sponsored by Fractured Atlas.
When you get a big cash influx, you will have to pay taxes on it whether it goes through a fiscal sponsor or not. But it can be easier to manage the tax obligations of those big donations if you work with a fiscal sponsor. Funds that Fractured Atlas disperses to our projects aren’t tax-free, but our projects can withdraw funds as needed so that they can spread out the tax responsibility for those funds over a longer period of time than if the money just hit their bank accounts in one fell swoop.
It is, however, worth nothing that not every big donation will require a fiscal sponsor, especially when thinking about donations from individuals. People tend to assume that donors giving big gifts will require a tax receipt but that’s not always the case. Be sure to ask before you jump into the fiscal sponsorship process to save yourself some paperwork you might not need!
When You Are Becoming a 501(c)(3) Nonprofit
Because fiscal sponsorship is an alternative to 501(c)(3) nonprofit status for many individuals and organizations, you might think that you will need to pick one or the other. But in actuality, plenty of folks use fiscal sponsorship while they are becoming a 501(c)(3), just ask our formerly fiscally sponsored project Wikitongues.
Becoming a 501(c)(3) nonprofit can take years and you might not be able to wait for that approval to start fundraising or applying for grants. Fiscal sponsorship can be a great intermediary place for groups that are either in the midst of a 501(c)(3) application or considering becoming their own nonprofit.
We promise that if you are a fiscally sponsored project and move on to being your own 501(c)(3) we as your fiscal sponsors will be nothing but proud and rooting from the sidelines.
Finding a Fiscal Sponsor
If you do find yourself in a position where fiscal sponsorship can help you grow and expand, you’ll have to find the right sponsor to work with.
To find the fiscal sponsor that’s the best fit for your needs, make sure to examine which model of fiscal sponsorship they use, what percentage fee they take from any incoming donations, how the financial disbursement works, and what other resources they offer to their fiscally sponsored projects.
You can learn more about Fractured Atlas’s approach to fiscal sponsorship and to creating a more vibrant and accessible arts ecosystem.
About Nina Berman
Nina Berman is an arts industry worker and ceramicist based in New York City, currently working as Associate Director, Communications and Content at Fractured Atlas. She holds an MA in English from Loyola University Chicago. At Fractured Atlas, she shares tips and strategies for navigating the art world, interviews artists, and writes about creating a more equitable arts ecosystem. Before joining Fractured Atlas, she covered the book publishing industry for an audience of publishers at NetGalley. When she's not writing, she's making ceramics at Centerpoint Ceramics in Brooklyn.