Year-End Tax Planning Ideas for Nonprofit Organizations to Maximixe Success and Compliance
As we draw to the end of another year, nonprofit organizations face a critical period for considering tax planning & compliance. Having effective year-end tax strategies can help with maximizing charitable contributions, managing Unrelated Business Income Tax (UBIT), ensuring compliance, and helping to set the stage for a successful new year! Here’s an overview of ideas to help your nonprofit navigate this crucial time.
Maximizing Charitable Contributions
Encourage Year-End Giving: The holiday season is a prime time for charitable donations. Launch targeted campaigns to remind donors of the tax benefits of giving before December 31. Highlight stories of impact and provide easy ways to donate online.
Offer Matching Gifts: Partner with corporations to offer matching gift programs which can double or even triple the impact of individual donations and even incentivize more substantial contributions.
Promote Donor-Advised Funds (DAFs): Educate your donors about the many benefits of creating & using their DAFs, which allows them to make a charitable contribution and receive an immediate tax deduction.
Accept Non-Cash Donations: Encourage noncash donations of appreciated securities, real estate, or other non-cash assets. These types of donations can provide significant tax advantages to donors by not only providing a charitable deduction but also avoiding capital gains taxes.
Managing Unrelated Business Income Tax (UBIT)
Identify UBIT Sources: Regularly review your revenue streams to identify any potential income that may be subject to UBIT and work with your tax advisor to ensure tax compliance. The most common sources of UBIT include advertising, rental income from debt-financed property, and income from certain fundraising activities.
Allocate Expenses: If your organization generates UBIT, be sure to also analyze potential direct (and indirect) expenses to properly allocate them which can help reduce taxable income. Be sure that your accounting practice is tracking and reflecting costs generated with each activity that generates UBIT.
Consider Structuring Options: Explore various structuring options that could assist with UBIT-generating activities such as forming a subsidiary to handle those activities. Not only can this help isolate taxable income, but this could also potentially reduce the overall tax burden on your nonprofit.
Maintaining Compliance
Review Filing Requirements: Be sure that you are up to date with all required tax filing such as Form 990, 990-T, and other state filings as this is imperative to maintain your tax-exempt status.
Stay Informed on Tax Law Changes: Tax laws continue to change so be sure to keep informed on any new regulations or changes at the Federal or state-level that could affect your organization. Working with a tax advisor that specializes in nonprofit tax issues can ensure you’re aware of any tax law changes that may impact your organization and help you plan accordingly.
Conduct a Compliance Audit: By performing a year-end compliance audit, you can then identify any potential issues and be sure you’re in alignment with IRS requirements. This may include reviewing governance policies, financial records, and operational practices.
Planning for the Upcoming Year
Set Financial Goals: Establish your financial goals for the upcoming year making sure they’re clear and include budgeting for operational expenses, fundraising targets, and reserve funds.
Develop a Fundraising Plan: Consider diversifying your funding sources to help with financial stability by creating a comprehensive fundraising plan that outlines strategies for donor engagement, grant applications, and special events.
Invest in Technology: Technology tools like donor management software and online fundraising platforms can help streamline operations, improve your donor management and overall help to enhance your nonprofit’s efficiency and engagement.
Engage Your Board: Have your Board of Directors get involved with the planning process to offer insights and expertise that can be invaluable with setting strategic priorities and ensuring accountability.
These are just a few areas your nonprofit can focus on as the year comes to a close to help navigate year-end tax planning, to maximize charitable contributions for your organization and donors, to manage UBIT most effectively, and to maintain tax compliance. By focusing on these key areas, your nonprofit can set the stage for a successful new year. Proactive planning and strategic execution specific to your organization are essential to achieving your mission and sustaining your impact!
For further assistance, feel free to reach out to us at Sharpe Patel, PLLC, a full-service accounting firm with offices in Raleigh, Charlotte, and Wilmington, North Carolina. With over 40 years of combined experience in public accounting, we specialize in both attest and tax sectors of the industry.