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If in 2017 I spent money for fees, legal and professional…

If in 2017 I spent...
If in 2017 I spent money for fees, legal and professional services and other set-up costs for a nonprofit I'm founding, can I write those expenses off even if I'm not earning an income from the nonprofit until 2018?If so, would they be unreimbursed employee expenses? As founder and direct of the nonprofit, I will be receiving a salary from the organization starting in 2018.
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Answered in 3 hours by:
3/26/2018
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 944
Experience: Former IRS Revenue Agent
Verified

I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Dear Customer,

This is my suggestion.

Part I.

It depends on whether the organization has tax exempt status from the IRS already or not, or whether it plans to apply for such status. To clear up, a non profit organization is not necessarily a tax exempt organization.

For the organization, there are set up costs which needs to be amortized as any organization.

For the person who donated the money to the non-profit, if the organization is tax exempt, the person can take cash contribution. Then, all the contributions can be deducted on the Form 1040, Schedule A.

Services provided cannot be deducted as charitable contribution. Only out of pocket expenses are deductible on personal Form 1040.

The money spent can be considered as capital contribution to the non-profit organization to increase its fund balance. If the organization is non profit but not tax exempt, the contribution is not deductible for the person who contribute the money.

Part II.

It is not employee expenses. It is not ordinary and necessary employee expenses no matter which year this taxpayer got the wage income.

Part III.

A private foundation not for profit can be none-tax-exempt. What it does is to work on the distribution of person's money for good use. The donation is after tax money. The foundation is to spent money and not to save tax.

To clarify the function and purpose of this organization will help how to register on the book and tax return the characteristics of these start up money.

Regards,

Fiona

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Customer reply replied 1 month ago
Thanks Dr. Chen. If the organization has applied for tax-exempt status but had not yet achieved that status in the year the start-up costs were paid by this individual, can they still deduct those expenses as tax-exempt contributions in they year they were made?

Dear Customer,

I would say yes. The IRS gives about 2 years for the organization to apply for the tax exempt status. The contribution made can be tax deductible for now. If the status is denied, we can always file amended tax return.

Therefore, for the individual, it is charitable deduction.

For the organization, it is start up cost which needs to be capitalized.

Regards,

Fiona

Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 944
Experience: Former IRS Revenue Agent
Verified
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Dr. Fiona Chen
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Category: Tax
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