Tax Tips for Nonprofits

Tax Day Over? Actually, Tax Day for Most Nonprofits is May 15.

Here are seven tax tips for nonprofits from PLC Staff Attorney Sarah Efthymiou.

1) File annual information returns with the IRS. Every organization must file a Form 990, 990-EZ, or 990-N, depending on its gross receipts and total assets. Certain organizations, such as churches, are exempt. For details on which organizations must file, which form to use and how to complete the form, see the IRS website.

2) Give individual donors receipts. Donors should be given a written acknowledgement of any contribution of more than $250 for their tax-deduction purposes. Nonprofits must provide the fair market value of any goods and services provided.

3) Pay taxes on unrelated business income if organized as a 501(c)(3). Unrelated business income is income earned from a regular activity that does not substantially relate to the organization’s exempt purpose. For example, if a youth soccer league sold apparel at every game, revenue generated in excess of $1,000 would be considered unrelated business income. An organization that earns more than $1,000 during the year and generates unrelated business income should file Form 990-T and pay taxes on the income. For details on exceptions, exclusions and deductions associated with unrelated business income, see the IRS website.

4) Adopt and follow a process for approving contracts and compensation agreements with insiders (officer, directors and employees). Nonprofits’ activities must serve the public, not private interests. All business arrangements with individuals in a position to influence the organization must be approved by independent persons, be commercially reasonable and cannot exceed fair market value.

5) Know the restrictions on lobbying activities. A nonprofit can lose its tax-exempt status if it engages in substantial lobbying. The federal and state restrictions and registration requirements are complex and require record keeping of the activities and the expenses.

6) Refrain from all political campaign activity. An organization may not engage in any activity that favors a candidate for public office. This includes campaign contributions, endorsements and public statements for or against a candidate. It also includes some business activities, such as selling or renting mailing lists, leasing office space or displaying paid political advertising not available to all candidates on an equal basis.

7) Consult an attorney when in doubt! The Public Law Center’s Community Organizations Legal Assistance Project (COLAP) provides pro bono attorneys to eligible nonprofits for their transactional legal needs. Don’t tackle the legal system alone; click here for more information about PLC’s COLAP.