Tax-Exempt Status Could Hinge On Filing Deadline

I posted a blog earlier this week explaining how 200,000 charities and non-profits are at risk of losing their non-profit status if they do not file a return by this upcoming Monday. The deadline is quickly approaching; are you ready? While you would think this would prompt any organization at risk to act quickly, as this story from NRP asserts, many simply do not know about the looming deadline.

The requirement goes back to a 2006 law that says nonprofits with revenues of $25,000 or less have to start filing annual tax forms — something they never had to do before. The law also says that if they fail to do so for three years in a row, their tax-exempt status will be immediately revoked.

Since nonprofits have to file no later than four months and 15 days after the end of their fiscal year, the three-year deadline for many groups is May 17 (May 15 falls on a Saturday).

Tim Delaney, head of the National Council of Nonprofits, is worried that a lot of tax-exempt groups will miss the deadline. He notes that some of these organizations are run informally by volunteers.

"The concern that a lot of people have is that many smaller nonprofits — a PTA, a local Little League — will even be aware of this change in the law," he says.

Continue reading at NRP.org…

Charities and Deductions

My YouTube team shot another tax tips video last week. In this episode, host Edward Lester shares some tips on claiming charitable contributions on your return. Be sure to enjoy the embedded video below and check out my YouTube channel and subscribe to my future videos.

Questions for the Tax Lady: December 28th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: I’m self-employed, and have all of the documents ready to prepare my 2009 tax return. When is the earliest I can file?

Well first of all congratulations on getting your financial documents gathered and organized early. However, the IRS does not generally begin accepting and processing returns until January 15^th. The usually begin accepting e-filed returns a few days prior, but I would say it is best to wait until after the 15^th to file your return.

Question # 2: Can you recommend any good charities to donate to before the end of the year?

Yes, there are plenty of charities listed on the IRS’s website that you can choose from but I always recommend The Hannah Rose Foundation. They accept donations online, and you can print out your receipt and put it right into the charitable contributions folder in your filing cabinet. I also support Prevent Child Abuse America, and they also accept donations online here. Finally, the American Society for the Prevention of Cruelty to Animals (ASPCA) is another charity dear to my heart. You can find information for donating to them online, here.

IRS Approves 99% of Applications for Public Charity Status

According to NY Times, the number of charities that are consider qualified non-profit groups in the eyes of the IRS has grown by over 60% in the last ten years. As an American taxpayer you can make deductible donations to over a million different charities.

Experts say nonprofits are skillfully exploiting the tax code’s broad and elastic definition of what constitutes such a charity, making it difficult for the Internal Revenue Service, which must bless them, to say no. The agency approved 99 percent of the applications for public charity status last year, according to a new study by students at Stanford University — or more than one every 10 to 15 minutes.

Take the Woohoo Sistahs, a social club that won approval last year. Its 50 or so members meet regularly over drinks and dinner in the Hampton Roads area of Virginia and raise money for cancer research and other causes through walkathons and sales held in retailers’ parking lots.

What the Sistahs do is not so different from what the Shriners have done for decades to raise money for their hospitals — except that the Sistahs can offer their donors a tax break that the Shriners cannot because decades ago they registered as a different type of charity with the I.R.S. (Direct donation to Shriners hospitals are deductible.)

The $300 billion donated to charities last year cost the federal government more than $50 billion in lost tax revenue.

“Especially during these tough economic times, it’s troubling to hear we are increasing the number of these organizations at such a rapid pace,” said Representative Xavier Becerra, a California Democrat who is one of the few members of Congress to pay attention to the nonprofit sector.

Continue reading at NY Times.com…

How to Stay Charitable During the Recession

Although the recession is affecting each of us in some way – commonly through declining home values or job losses – charities and non-profit organizations are being hit the hardest. However, even as everyone is tightening their personal budgets, being charitable is still your best interest as a U.S. taxpayer. In addition to the feeling of knowing you have done something good for a fellow American, you will be able to deduct your donations come tax season.

One of the biggest reasons charities are suffering so much is the obvious decline in donations. As Americans across the country make a greater effort to save money, many are choosing to decrease – and frequently halt – regular donations to their favorite charities. In addition to less personal donations, giant corporations that used to donate millions of dollars per year are being forced to make cuts. Likewise, dozens of small business owners and sole proprietors that also used to make large charitable contributions are cutting back. In fact, the Red Cross is reportedly seeing a reduction in donations by around 30% this year.

As if a decline in donations was not enough, due to massive job losses and home losses, the country has a greater need for charity now then it has in decades. Homeless shelters in some cities are becoming so crowded that they are turning people away. At the same time, those overcrowded homeless shelters are struggling to stay open because of a decline in donations and financial support. The same can be said for food aid programs, blood drive programs, or just about any charitable or non-profit organization you can think of.

As the recession continues more and more charitable groups are struggling. However, even if your income has gone down there are still plenty of ways to remain charitable.

1. Do NOT Spread it Out

A lot of people who are used to donating to multiple charities – but can no longer afford to make large monetary contributions – are hoping to simply make much smaller donations to each charity or non-profit. However, charity organizers say that while making small donations are always appreciated; donating a larger amount to one or two charities will often make a much larger impact.

2. Volunteer your Time

If you cannot afford to help out a non-profit by donating money, then you can volunteer your time. You could deliver foods for a local "Meals on Wheels" chapter, or help out at a food shelter. Although you cannot take a tax deduction for your time, you can deduct any direct expenses you incur as long as the charity you are working with is qualified. Therefore, if you bought gas for your car to participate in a "Meals on Wheels" program then you could deduct it on your tax return. Just be sure to keep the receipts!

3. Business Donations

If you own your own business, or are self-employed, then you can make donations on behalf of your business. This means you could donate any old office equipment you are no longer using, and if your business does free work for a charity then you can consider the time spent working on the project as a donation.

4. Non-Cash Donations

Since most of us are tight on cash because of the poor economy, you can also consider donating non-cash items such as clothes, food, or even a vehicle. Even though the donation is not money, you can still get a tax deduction as long as you get a receipt for the donation. However, the IRS has become very weary of non-cash deductions, so make sure you only claim the “fair market value” of the item donated.

5. Get More People Involved

When it comes to charity the more people you can get to help the better. Gathering your family, church group, or coworkers to help out at a charitable event will make volunteering both more enjoyable and more efficient. You could even speak with your employer, or human resources department, to help organize a company wide donation event.

Recession, Tax Plans Worry Donors And Nonprofits

The Associated Press published an article recently discussing how some non-profits and donors are afraid that Obama’s newest tax changes will negatively affect them. You can find a snippet of the post below, but the full text can be found here.

Chicago philanthropist Richard Kiphart contributed generously to Barack Obama's campaign and is glad he backed a winner.

But he's among many donors and recipients in the philanthropic world worrying that Obama's new tax proposals could deter future giving at a time when many nonprofits already are in crisis mode.

"I just think they're wrong on this," said Kiphart, a corporate finance executive at global investment firm William Blair & Company. "All these organizations are crying: 'Why are they doing this to us?'"

Many wealthy Americans weren't shocked when Obama's budget proposal called for raising their income taxes. But there was surprise — and some alarm — over a separate proposal to limit the deductions that couples earning more than $250,000 can claim for charitable gifts.

Under the plan, a donor in the highest tax bracket would save $280 on a $1,000 charitable deduction, instead of $396.

Obama's budget director, Peter Orszag, says the change wouldn't occur until 2011, when the administration hopes a recovery will be under way, and there's a chance the proposal will die in Congress. But many in the nonprofit world are uneasy.

"This is a time of tremendous anxiety in the nonprofit sector," said Kathleen McCarthy, director of the Center for the Study of Philanthropy at City University of New York.

"A lot of these organizations are going to die in the next six or nine months," she said. "Saying you want to play around with the tax code only makes things worse psychologically."

Nonprofit officials and philanthropy experts interviewed by The Associated Press agreed that tax consequences are a secondary factor for many donors.

Tax Exemptions of Charities Face New Challenges

The New York Times recently posted an interesting article on some of the new challenges tax exempt organizations are facing with recent changes to the tax code. I have included a snippet from the article below, but you can read the full thing at NYTimes.com.

“Authorities from the local tax assessor to members of Congress are increasingly challenging the tax-exempt status of nonprofit institutions — ranging from small group homes to wealthy universities — questioning whether they deserve special treatment.

One issue is the growing confusion over what constitutes a charity at a time when nonprofit groups look more like businesses, charging fees and selling products and services to raise money, and state and local governments are under financial pressure because of lower tax revenues.

And there are others: Does a nonprofit hospital give enough charity care to earn a tax exemption? Is a wealthy university providing enough financial aid?

In a ruling last December that sent tremors through the not-for-profit world, the Minnesota Supreme Court said a small nonprofit day care agency here had to pay property taxes because, in essence, it gave nothing away.”

IRS Reminds Charities and Churches of Political Activity Ban

Recently the Internal Revenue Service put out a press release reminding charities and churches, and other section 501(c)(3) organizations, that federal law prohibits them from becoming directly or indirectly involved in campaigns of political candidates. However, these organizations can engage in advocating for or against issues and, to a limited extent, ballot initiatives or other legislative activities. "The political contests, especially for president, are starting earlier than usual. The IRS, as it has in the past, wants to remind charities and churches of the ban on political campaign activity. We also want to urge nonprofit and religious organizations to review the guidance we have issued to help them avoid any problems," notes Steven T. Miller, Commissioner of IRS’ Tax-Exempt and Government Entities Division.

Two Senators Urge IRS to Update Charities Disclosure Form

Sen. Max Baucus, chairman of the Senate Finance Committee Chairman and Sen. Charles E. Grassley, Republican of Iowa have asked the IRS and - specifically - the U.S. Department of the Treasury to update the Form 990, the federal informational tax return charities file.

"It is clear that transparency and openness are pillars in encouraging our nation's charities to be responsive to the needs of the community," wrote the Senators. A more thorough form "will allow the IRS to better identify those entities that warrant additional review or further questions... and also mean that charities that are doing the right thing will be less subject to audit."

Among the topics the senators asked the Treasury Department to focus on as they revise the form:

• Executive pay and perquisites - including payments from other charities, joint ventures, contracts, and subsidiaries
• Endowments - charities that have endowments should show how much of the endowment is spent on their charitable mission
• Related organizations and joint ventures
• Fund raising - how much of the money they raise is spent on charitable programs rather than fund-raising costs
• Hospitals - more information about their charity care and billing and debt-collection practices
• Governance

"Fast and loose games in this area undermines the mission of nonprofits and fosters a public cynicism that's detrimental to all charities as they rely on public support for their nonprofit work," wrote the Senators.