Maximize Your Tax Benefits: Essential Tips for Public Charities

Maximize Your Tax Benefits: Essential Tips for Public Charities

The charity and non-profit sector has unique tax rules that can be difficult to understand. For professionals working this field, optimizing tax benefits can have a significant impact on their organization's ability to fulfill its mission, whatever it may be.

Understanding IRS tax rules and taking advantage of available deductions or credits can greatly reduce tax liability. Below, we will explore essential tax tips specifically tailored for individuals working for public charities. By implementing these actionable tips, you can maximize your organization's tax benefits while staying compliant with federal tax regulations.

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Maintain Accurate Financial Records

Proper record-keeping is a crucial component of tax compliance, especially in the oft-complex non-profit sector. Establish an efficient internal accounting system to track and document all financial transactions, including donations, expenses, and income. Keep receipts, invoices, and bank statements organized and accessible. Your tax professional will appreciate this!

Accurate financial records not only ensure compliance but also help identify potential deductions and support your charitable organization's tax filings.

Understand Your Tax-Exempt Status 

As a public charity, your organization more-than-likely qualifies for tax-exempt status under section 501(c)(3) of the United States’ Internal Revenue Code. Familiarize yourself with the specific requirements and restrictions that come with this status.

It is also important to make sure your organization remains in compliance to maintain its tax-exempt status. Some people don’t realize that this status can be revoked if you make certain errors. By leveraging your tax-exempt status, you can potentially attract more donors and benefit from tax-deductible contributions.

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Maximize Deductible Contributions

Almost all public charities, including soup kitchens, environmental clean-up organizations, and homeless shelters, rely heavily on contributions from individuals and businesses. Encourage donors to make tax-deductible contributions by providing them with the necessary documentation, such as donation acknowledgment letters. This way, they can submit their paperwork along with their federal tax returns.

In addition, educate your donors about the tax benefits associated with their contributions. You may also want to ask your organizaton’s tax advisor to help you explore strategies like donor-advised funds and planned giving to maximize the benefits from your supporters’ long-term financial gifts.

Learn About Unrelated Business Income Tax 

Public charities may engage in activities that generate unrelated business income (UBI). Familiarize yourself with the concept of UBI and the rules surrounding it. Ensure your organization properly reports and pays taxes on any UBI generated. Explore strategies to minimize UBI tax liability, such as identifying and segregating unrelated activities or considering the applicability of exceptions and exclusions.

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Leverage Employment Tax Benefits 

If your organization has employees – not volunteers – make sure they are taking advantage of employment tax benefits. It is smart to look into available tax credits, such as the Work Opportunity Tax Credit (WOTC), which provides incentives for hiring individuals from targeted groups, including certain minorities.

Stay Informed and Seek Professional Guidance

Tax laws and regulations are subject to change, making it crucial to stay informed about updates that may affect your organization's tax obligations. Regularly review IRS publications, attend tax seminars, and consult with tax professionals who specialize in the non-profit sector. Their expertise will help you navigate complex tax matters, ensure compliance, and identify additional opportunities to minimize tax liabilities.

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By following these tax tips, professionals working in public charities can maximize their organization's tax benefits, ensuring financial stability and growth. Remember to consult with a local CPA or tax professional to ensure your organization's tax strategies align with the latest regulations and best practices set forth by the IRS.

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Frank Jenkins Jr

Frank Jenkins Jr

Frank Jenkins Jr. is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, accounting, audit & assurances. "I genuinely care about our clients because I have a personal connection with them. This job requires me to multi-task and work under tight deadlines. I get great professional satisfaction from balancing firm and client commitments while building a strong team here at AJC."

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