Have a Tax Question? Ask a Tax Expert
Essentially, for donations to be tax deductiible, they need to be made to a qualified charity
Qualified charities are 501(c)(3)s, religious organizations and certain other organizations organized under section 501
If you're organized at the state level as a non-profit corporation, then as long as you are satisfying your state's regulations and reporting requirements, then you MAY not have to pay tax on your income at the STATE level
If you can tell me more about your organization, I can help further, For example, if the events were for qualified charities and those funds were ultimately donated to THOSE charities (actual qualified charities) then your organization may have charitable deductions against the income
Amutual benefit non-profit corporation or membership corporation, in the United States, is a type of nonprofit chartered by a your state that exists to serve its members in ways other than obtaining and distributing profits to them. Therefore, it cannot obtain502(c)(3)non-profit status as a charitable organization
And even though a mutual-benefit corporation can be non-profit or not-for-profit, but it still must pay regular corporate tax rates. A mutual benefit corporation will pay the same taxes as a regular for-profit corporation. (C corporation tax rates). Mutual benefit corporations must still file tax returns and pay income tax because they are not formed for a purpose that anyone in the world could benefit from. Mutual benefit corporations are formed for nonprofit purposes like managing a condo association, a downtown business district, or a homeowners association.
If you'll come back and share more detail we can go further here, but again, simply incorporating as a non-profit doesn't ALWAYS make the income from operations exempt from taxes
I still don't see you coming into the chat here ... I'll move s t the Q&A mode ... Maybe that will help
Please lt me know if you want to talk more on this
Our organization is establishing an educational institution. We held a fundraiser with community members to receive some seed money to open a school. The fundraising money will be used to up front lease costs, renovations, start up school costs, etc. The money currently is sitting in our bank account and has not yet been used, we expect to use the money when the need arises (around February 2014 most likely). We have tried to apply for a 501(c)3 status by filling out form 1023, however since the school is not in operation at the moment we do not qualify.
The question then is, with the money already received, do we have to pay "income" taxes on this amount. With that, which forms would we file for the 2013 tax year (we were incorporated in July 2013) and are there any deductions we can take?
In our articles of incorporation we put religious context on how the corporation would operate. We share the same address as one of our religious institutions, however we don't necessarily associate ourselves with them.
Caleb,I was just doing some research to see if I could find anything else regarding your issue.This site (a law firm specializing in non-profits) is actually talking about 501(c)(3)s that have had their exempt status revoked.... Two thins may still apply:(1) They verify that if you're a corporation that you'll have to file the 1120 as we discussed BUT MOST IMPORTANT...(2) They say that donors may be able to deduct their contributions once the tax exempt status is reinstated.They say: (Note the sentence, where I've underlined)
No. Donations received after official notification of revocation of your tax-exempt status as a 501(c)(3) are no longer tax-deductible.
Individuals can always donate, but only upon official notification of re-instatement of your 501(c)(3) tax-exempt status may your donors receive tax-deductibility for their gifts.
People who donated to the organizations before their status was revoked can still claim the deductions, according to the IRS.
Here's the site: http://www.cullinanelaw.com/nonprofit-law-101-youve-automatically-lost-tax-exemption-now-what/I know this isn't the magic answer, but if those that have lost status can provide for a deduction once status is re-granted... the maybe this means that those awaiting or expecting the status can provide the deduction once that status is granted.Just looking to see if I could find anything at all for you ... might be worth a quick call to discuss your situation with them: (I have no association with them, it's just that their area of expertise really seems to apply here).Hope this helps.And again, as I mentioned before there ARE things that the corporation can deduct NOW to offset any income for now.Lane
All of these answer are helping a lot, thank you! However, a few questions still remain.
Maybe if I try and rephrase the question it will have better clarity.
A non-profit corporation, incorporated in July 2013. The articles of incorporation and by-laws include religious context in which the corporation will operate, however, the corporation does not associate itself with a specific religious institution. The corporation was founded in order to establish a public charter school and provide other educational services long-term. The corporation attempted to apply for 501(c)3 status, but did not qualify as the school is not in operation until August 2014. Fundraisers have already taken place and contributions were made to the non-profit corporation. The corporation will use the funds as defined in the articles of incorporation and by-laws. There is no officer/executive/board compensation.
The question is, is the amount already collected and any further contributions received by the corporation without the 501(c)3 status, subject to income taxes or any other type of tax?
Does this require the 1120 or the 990 since we intend to apply for our 501(c)3 status and are incorporated currently as a non-profit corporation?
If you file after 27 months, your exemption will only be effective from the application's postmark date.
You can file for an extension of the 27 month deadline by attaching to your 1023 a statement providing the reasons why you failed to complete the 1023 application process within the 27-month period after your incorporation.
You can find the acceptable reasons in the INSTRUCTIONS for form 1023. They include bad advice and information from a lawyer, accountant, or IRS employee.
Filing the 990
If your organization claims to be tax-exempt and intends to file your 2300 with the IRS by the end of the 27th month you must file Form 990 (or 990-EZ or 990-N as appropriate) during the 27 month period, even though you have not received determination yet. (The determination letter from IRS is your best PROOF of tax exempt status).
Larger nonprofits that have gross receipts of more than $50 ,000 have to file Form 990 or 990-EZ.
Smaller non-profits having gross receipts of less than $50,000 should file the 990-N.
I spoke with a tax law professor of mine about this. and filing the 1120 only applies when you have LOST tax exempt status.
By the way ... NOT filing the 990 is one of the best ways to do that.
When you do the 990, you'll notice that the receipts will be indicated as either related to the charity or not. Related receipts, (donations that meet with your articles and by laws, for the operation/construction of the school, for example, are related) will not be taxable.
Hope this clears it up for you.
We look forward to helping you and your nonprofit or social enterprise. Please feel free to call us or fill out this form so we can be in touch with you shortly.
Cullinane Law Group 9600 Escarpment Blvd. Ste. 745 – 208 Austin, Texas 78749
Ok thanks for the information Lane.