Nonprofit Tax Tips

With the 2016 elections on the near horizon, nonprofit tax breaks continue to be a hot-button issue in the House and Congress. Whether it is the charitable tax deduction for donors or tax breaks offered to registered nonprofit organizations, legislation keeps popping up on the table to reduce, eliminate or in some cases enhance charitable tax deductions.

It's an issue that does not seem to be going away anytime soon, even if legislation has not quite changed the landscape in those regards just yet.

Even without the debate, there are many things nonprofits must take into consideration when it comes to filing their taxes … as well as providing donors with the proper documentation to record their own charitable tax deductions.

That's why NonProfit PRO spoke with two expert nonprofit tax attorneys to provide their tips on the tax issue for nonprofit organizations. Here are the insights — from the basics to the changing landscape — shared by Cliff Perlman, partner at the law firm Perlman & Perlman, and attorney Marc J. Lane.

The fundamentals

The most obvious yet critical step in nonprofit tax compliance is making sure your organization is a registered nonprofit with the IRS. That means keeping your 990 up to date. It's the only way to ensure your nonprofit meets the tax-exempt qualifications, something that has caused many organizations problems over the years.

Once you know your organization is registered, there are a few more basics Perlman says every nonprofit should take note of to ensure no tax hassles:

• Make sure you pay tax on unrelated income tax.
• Be careful when receiving money from a for-profit company — how the gift is acknowledged by the charity can affect whether it's a donation to the charity or unrelated income, which requires the charity to pay tax on the funds received.
• Acknowledge receipt of money. The law is that any donation of $250 or more must be acknowledged. It's never a bad idea to acknowledge every gift, but it's absolutely necessary for those over $250. Perlman suggests investing in software to track and automatically receipt donors, and make sure your organization is careful and understands both the software and the law.

Another area Perlman says nonprofits must be careful is with cause-marketing campaigns. For instance, if a business makes a statement to the consumer that for each purchase of the company's hamburger that 10 cents will be donated by the business to a charity, the company is a commercial co-venturer required to register in a few states. If the company makes a statement that the purchaser is making a donation by buying a hamburger, the company may be considered to be a professional solicitor, a designation which will trigger additional compliance requirements.