4Thought Blog

Revenue generated by 501(c)(3) organizations is generally exempt from federal income tax. But in some cases, your nonprofit may incur unrelated business income tax (UBIT) on revenue.

 The good news is your annual tax return may offer some relief in the form of deductions. The list isn't as long as the "ordinary and necessary business expenses" for-profit entities can deduct, but here are six common nonprofit deductions to know about:

In the face of the “Great Resignation” and rising inflation, organizations are taking a second look at the size of their salary increase budgets.

For the last decade, budgets for merit increases have hovered around 3%. Now, salary increase budgets are on the rise to levels not seen in years, according to BDO’s first-quarter 2022 Salary Increase Budget Pulse Survey.

The average 2022 merit budget set in Q3 2021 was estimated to be around 3%, in line with previous years.

However, as 2022 approached, the talent shortage persisted, and it became clear that salary increase budgets needed to be higher. Merit budget predictions in Q4 2021 increased to just under 4%.

If your nonprofit organization operates on a calendar-year tax basis, the deadline for filing your 2021 Form 990 (Form 990 EZ for certain small organizations) is right around the corner — May 15, 2022.

Besides filing on time, you must ensure the information provided on your form is accurate. Pay particular attention to the following eight issues that commonly trip up nonprofits:

Suppose the founder or long-time executive director of your nonprofit organization is scaling back on her workload and making plans to retire. What will her departure mean for your organization?

If your nonprofit has a well-crafted succession plan, it's likely to survive any leadership transition. But if you don't have a plan, your organization could endure a rocky period, and possibly close.

Even if your top leader intends to remain in the job for years, illness or another unanticipated event could disrupt plans. For these reasons, every nonprofit needs a formal succession plan.

New nonprofits must apply to the IRS to be approved as a 501(c)(3) or tax-exempt organization. There are a few hurdles to clear.

First, nonprofits must be organized and operated exclusively for tax-exempt purposes — which means they aren't trying to make a profit. Also, none of their earnings can inure to the benefit of private shareholders or individuals. And they can't attempt to influence legislation as a substantial part of their activities or participate in political candidates' campaigns.

If your nonprofit meets all those conditions (and possibly others), congratulations! Now, what form should you use to apply? Traditionally, organizations only had the option to use Form 1023. But the IRS introduced Form 1023-EZ in 2014 and you may want to choose this streamlined version.

Traditionally, 403(b) plans have been the qualified retirement plan of choice for nonprofits. These plans were established for the exclusive benefit of tax-exempt organizations.

However, nonprofits now have other options as well. Even if you continue to prefer a 403(b) plan, as many nonprofits still do, it pays to review and weigh the benefits of other types of accounts.

The last two years have been tough for most nonprofits. Now that there's some light at the end of the tunnel, you may feel more optimistic and with a renewed dedication to your cause.

How can you extend the concept of renewal to your organization's operations and even grow in 2022? Here are seven ideas: 

If certain IRS requirements are met, a nonprofit organization is exempt from federal income tax. But that doesn't mean it's completely off the hook.

Your nonprofit may still be liable for unrelated business income tax. Here's how you determine your organization's exposure.

Many nonprofits are dealing with the uncertainty of the ongoing pandemic as well as increased demand for their services. It’s a delicate balancing act, but with proper systems and support, nonprofits are up for the challenge.

The first blog of this two-part series covered how the sector has benefited from COVID-19 relief funds, along with best practices for complying with new accounting standards, safeguarding against cyberattacks in a hybrid or fully remote working environment, automating manual processes for greater efficiency, and implementing a successful diversity, equity and inclusion (DEI) strategy.

In this second part of the series, we highlight five additional considerations for nonprofits around succession planning, funding volatility, remote management and leadership, planning for disruption and change management.

Most nonprofit executives are aware of the prohibition against private inurement. Generally, nonprofit directors and executives — and their family members — aren't allowed to personally benefit from their positions while putting their organization at a disadvantage.

Penalties for violating the private inurement mandate could include financial sanctions for violators and, in the rare worst-case scenario, loss of the organization's tax-exempt status.

Usually, violations involve large organizations, yet smaller charities aren't immune. But whether a nonprofit is large or small, there are three areas where private inurement violations typically occur.