TAX RESPONSIBILITES for Rotary Clubs - PowerPoint Presentation

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TAX RESPONSIBILITES for Rotary Clubs

Presented by Tim LundellDistrict Trainer

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Topics to be covered

IRS ClassificationTax Deductible StatusFundraisingDisclosures Required

Unrelated Business Income Tax

Filing Requirements

Accounting

Financial StatementsRecommendations501(c)(3) Tax Exempt Organization

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STEP #1

2013 AssembliesGET A TAX GUY (OR GIRL)!Slide4

Not all 501(c)’s are created equal

The IRS has 29 types of 501(c) designations which grant exemption from taxes

So what designation does our Rotary Clubs fall under?

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IRS Classification

May 13, 1958, the IRS declared Rotary International and its clubs and districts exempt from federal income taxes under IRC Section 501(c)(4).IRC 501(c)(4)

Civic leagues or organizations not organized for profit but

operated exclusively for the promotion of social welfare

, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively

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Isn’t that like a 501(c)(3)?

Although very similar to a 501(c)(3), there is a big difference:Social welfare organizations, cannot attract charitable donations that are deductible for income, gift, and estate tax purposes.

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Tax Deductible Status

Donations to your club are not deductible as charitable donations by the donor.

Membership dues may be deductible for some Rotarians as a business expense.

Rotary meetings may be deductible for Rotarians as a Meal & Entertainment Expense.

Deductibility is determined by Rotarians status; business vs. individual

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Fundraising

Sponsorships may be deductible for Rotarians as a business expenses.Business expenses are generally preferred over charitable contributions for businessesTicket Sales do not have a charitable donation allocation.

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Disclosures Required

IRC Section 6113 requires certain tax-exempt organizations that are ineligible to receive tax deductible charitable contributions to disclose, in “an express statement (in a conspicuous and easily recognizable format), “ the nondeductibility of contributions during fundraising solicitations.

Organizations whose annual gross receipts do not normally exceed $100,000 are excepted from this disclosure requirement

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Unrelated Business Income Tax

Aka – UBIT or UBTIIRS Publication 598 – Tax on Unrelated Business Income of Exempt Organizations

Unrelated business income is the income from a trade or business regularly carried on by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity.

Certain trade or businesses are not treated as an unrelated trade or business.

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UBIT – Cont.

Membership list sales – taxableAdvertising – taxable

Sponsorship – not taxable

Selling Donated Merchandise – not taxable

Volunteer Workforce – not taxable

UBIT is a Gray area – seek professional assistance to assist in determination

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Filing Requirements

Form 990 Due 15th day of the 5

th

month after your fiscal year end.

December 31

st yearend, due date is May 15thUp to 6 month extension

Form 990-T

Unrelated business income tax returns for federal and state; same due date

Extension available, but payments are due on 15

th

day of the 5

th

month after your fiscal year end

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Accounting

Generally Accepted Accounting PrinciplesGAAP

Accrual-based (not cash) accounting

Income is recorded when earned

Expenses are recorded when incurred

Prepare a budgetReconciliations should be performed monthlyPerson doing books should not have check signing authority

Copies of all deposits should be made

Invoices should be properly coded and canceledSlide14

Functional Expenses

Program ServicesInternational Service projectCommunity Service Projects

RYLA, Interact, other

Management and General

Fundraising

Event 1Event 2Membership2013 AssembliesSlide15

Financial Statements

Statement of Financial Conditionaka – Balance Sheet

Statement of Activities

aka –

Income Statement or Profit & Loss

Statement of Functional ExpensesProgram

Management & General

Fundraising

Membership

Statement of Cash Flows

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Tax-Exempt 501(c)(3)Charitable Foundation

Form 990-N (e-postcard) For

small tax exempt organizations where annual “… gross receipts are normally

$50,000 or less

.”

You need basic information – EIN, tax year, legal name and address, any other names used by the organization, name and address of the principal officer, web site (if applicable), confirmation of gross receipts normally $50,000 or less, confirmation that the organization has not terminated operations.Slide17

Tax-Exempt 501(c)(3)Charitable Foundation

Form 990-EZ and Form 990

File the Form 990–EZ

when:

Gross receipts are less than $

200,000

and

total assets are less than $500,000

File the Form 990 when:

Gross receipts

equal or exceed $200,000

or

total assets equal or exceed $500,000. Slide18

Recommendations

Identify all income sources and classify them accordingly Utilize professionals to assist in compliance Utilize accounting software (Like Quick Books

)

Ensure persons handling finances is

knowledgeable

2 signatures on all Checks or approved memo signed by 2 members.2013 AssembliesSlide19

IRS Website

To check clubs status:http://www.irs.gov/Charities-&-Non-Profits/Automatic-Revocation-of-Exemption-List

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