The New Nonprofit Tax Laws for Dummies, Part 1

You gleefully pitch the idea to Mom, and she agrees to buy you all the supplies you need, but like a typically dastardly parent, the help comes with a catch. See, Mom knows that the last thing you want to do during summer vacation is practice your math, so she pitches you a deal you can’t refuse: She’ll buy you everything on the condition that you give a percentage of what you make back to her for your “College Fund.” You protest and protest, shouting out anything that comes to mind, “It’s not fair!” and “Taxation is theft!” but it’s no use. You begrudgingly agree, and at a ripe early age, begin to experience the crushing disappointment that comes hand-in-hand with tax season—thanks Mom!

To break the immersion for a moment, the money you make—and that from which Mom takes—is what’s known as taxable income.

As the summer drags on and paydays come and go, you toss and turn in your sleep, dreaming of how fat your piggy bank would be if only you could keep more of your money. Mom, sensing your sadness—but more importantly, an opportunity for yet another lesson—offers you a deal, one with two equally tantalizing choices.

She agrees that she may have been taking a bit too much from you, but she isn’t going to directly reduce the amount she takes from you. No, that would be far too easy and frankly, diminish the educational value. Instead, she graciously allows you to do even more work, and effectively “take” money out of the amount she takes from. What does this mean? Well, let’s pretend that enough neighbors were guilted into buying your watered-down lemonade that you were able to make $20 and out of that; Mom normally snatches 10 percent, or $2. Now though, she’s letting you “hide” some—say, $5—so now when she grabs 10 percent, she’ll only walk away with $1.50. In the real world, these are called deductions.