Hello @redandwhite331 and thanks for your question. and thanks for your fundraising efforts! As far as processing donations like this, you're correct as far as the tax-free donations...but making an item in your inventory "tax free" only marks it as free from State Sales tax according to your sales tax settings in your account. For example, my state collects 6% state sales tax on some kinds of items, so If I'm selling an item that is non-taxable, I make that ITEM tax-free in my inventory list. ...However, this doesn't prevent it from showing up as an item I sold, and if you get a 1099 tax form at the end of the year, this item's sale still contributes towards merchandise and profits sold. Square cannot distinguish a charitable donation that might be swiped on a credit card; if it's a credit card charge in your POS, Square is going to charge the transaction fee and place it in your sold/profit in your dashboard.
Do you use separate accounting software like Quickbooks for your business? If you setup those transactions with a unique category or name, you could separate those out, so at tax time at the end of the year you could subtract those from your sales/profit for the year. And if you use Quickbooks for your accountant, then the 1099 from Square is just paperwork to keep in your file because the Quickbooks data would already reflect those sales for the year.
I hope I wasn't confusing on this issue. If there is a way to mark a sale as a charitable contribution in the Square POS, I do not know about it. Maybe another seller with experience doing this kind of transaction can post a reply here as well. They only way I can think of to make sure it doesn't count toward your Square sales is to keep it separate as checks written directly to those charitable organizations. You could also ask an accountant or tax professional about making transactions like this.
