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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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My husband has a website on which he posts sermons. We started

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My husband has a website on which he posts sermons. We started receiving donations so we were talked into setting up a non-profit organization. But we decided we did not want to go the full route of applying for a 501(c)(3). So I sent in a 990 form and I received a CP120 notice back stating that it was the wrong form and that I needed to either file for 501(c)(3) status or file 1120.
I filled out a 1120 but I ended up owing about $194 in tax. Our gross income ranges from 2,000 to 7,000 a year.
It was my understanding that a non-profit organization was tax exempt. Am I wrong on that. Would it only be exempt from paying taxes if it filed the 501c.
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

LEV :

Hi and welcome to Just Answer!
If you have a separate business entity and you did not file for 501(c)(3) status for your entity - you may not claim tax exempt status - and all your income should be treated as taxable. Thus filing form 990 was not correct and that is why you receive a notice from the IRS.

LEV :

You did not mention if your husband registered a separate business entity. If not - filing form 1120 would not be correct either. That form is for corporations. If you do not have a corporation - do not use this form.
If your husband just owns the website - that doesn't create a separate taxing entity - and he should be considered as a self-employed person.
Without 501(c)(3) status - all income will be included into gross business income for tax purposes - even you are receiving donations - that will be your gross business income.


The business income and expenses will be reported on the schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf


The net income (after deductions)will be reported on the form 1040 line 12 - http://www.irs.gov/pub/irs-pdf/f1040.pdf


If the business has net income over $400, it may be required to file Schedule SE, Self-Employment Tax and net income is likely self-employment income and 15.3% self-employment tax would be required (13.3% in 2012).


Self-employment taxes from schedule SE will go to the form 1040 line 56 - http://www.irs.gov/pub/irs-pdf/f1040.pdf


Also - she will deduct half of self-employment taxes on the line 27.
Generally - that all you needs. Please review all possible deductions - that might help to reduce income tax liability.

Customer:
Customer:

I'm having problems getting my reply to you. It is seperate business entity with it's own EIN number. Registered as a non profit corporation.


 

Customer:
Customer:

It should say hit enter to reply. I was trying to send my reply by hitting the reply button and it wasn't working


 

Customer:
LEV :

I will switch to Q&A mode - so it would be easier to communicate.
Please refresh your screen.
Sorry for technical issues.

Customer:
LEV :

Then - you are correct - if you registered a separate entity as a corporation - you need to use the form 1120. You still will treat all income as gross business income and deduct all qualified business expenses.
You may only use 501(c)(3) status and file form 990 - if apply for that status and it was granted by the IRS.

Customer:

Where are you now?

Customer:
Customer: replied 4 years ago.
Seemed like you disappeared. I think your advise was what I was expecting but I was frustrated with the technical issues so I couldn't give an excellent rating. Thanks
Expert:  Lev replied 4 years ago.
See here - http://www.irs.gov/charities/article/0,,id=136195,00.html
What is the difference between nonprofit and tax-exempt status?

Nonprofit status is a state law concept. Nonprofit status may make an organization eligible for certain benefits, such as state sales, property and income tax exemptions. Although most federal tax-exempt organizations are nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax. To qualify as exempt from federal income tax, an organization must meet requirements set forth in the Internal Revenue Code.


So being a nonprofit organization and having a tax-exempt status - are not the same.
I am sorry if you expected a different answer.
Be sure to ask if you need any help or clarification.
You are welcome back for all your tax related questions.
Lev and other Tax Specialists are ready to help you
Customer: replied 4 years ago.

Hi, Thank you for your explanation and link to the website. That is exactly what I was looking for. I had searched the IRS website and could not come up with that - from the horse's mouth so to speak.

 

I have another question on a totally unrelated issue. Should I start another thread so you can bill me again or can you answer it for me here?

Expert:  Lev replied 4 years ago.
You may ask all your tax related questions either way - starting a new thread or posting it in the same thread.
Please be aware that experts are credited for all answers rated positively.
My goal is to provide EXCELLENT service - so be sure to ask if you need any help or clarification.

Please be aware that experts to not have access to your account - and I may not know what is your service plan and how exactly you would be billed.