Non-Profit / Tax Exempt Organizations taxes

Nonprofit organizations are exempt from federal income taxes under subsection 501(c) of the Internal Revenue Service (IRS) tax code. These entities can collect donations and turn over the entire amount (minus expenses) to organizations or individuals who are lawfully recognized as legitimate charities.

BUT charitable nonprofits recognized as tax-exempt MUST file an annual information return with the IRS. These organizations must file Forms 990-EZ and 990.

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Unrelated Business Income Taxation (UBIT)

When tax-exempt charitable nonprofits earn income through an activity that is unrelated to their exempt purposes (e.g., an activity that is commercial in nature, like sales of goods) and the activity is “regularly carried on,” the revenue from the activity may be taxable income under IRS rules for “unrelated business income taxation,” often referred to as “UBIT.” For those tax-exempt organizations with an unrelated business taxable income (UBIT) of $1,000 and above, they MUST file Form 990-T. The potential tax liability for unrelated business income requires every charitable nonprofit to know where its revenue is coming from and determine whether any of its income is taxable under the UBIT regulations

All Form 990 series must be filed with the IRS on the 15th day of the 5th month after the close of the nonprofit’s fiscal year. In addition to filing annual tax forms, 501(c)(3) charitable nonprofit organizations must provide a written acknowledgment to the donor for any single contribution of $250 or more before a donor can claim a charitable donation on their federal income tax return.

At Marigu Consulting, we can help you meet these legal requirements so that you can focus on your organization’s mission.