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Quarterly STO Newsletter
First Quarter 2020

Due Date Reminders

April 15th Last day to collect 2019 tax credit contributions from individual donors.

May 15th 2018 Form 990 or 990-EZ due date for year-end June 30, 2019 returns properly extended by November 15, 2019.
 
May 15th 2019 Form 990, 990-EZ, or 990-N (e-postcard) is due to be filed with the IRS for entities on a calendar year (ending December 31, 2019).

Federal Deduction Opportunities for Business Contributions to STOs Continue to be a Hot Topic


As STOs and CPAs continue to work through the changes enacted by the 2017 tax reform package and the additional guidance previously released by the IRS in these areas, clarification of rules is sometimes needed. In our first quarter newsletter last year, we described the IRS guidance released in December 2018 that covered the ability for businesses to deduct contributions that also provide state tax credits. No additional guidance has been released, but we wanted to revisit the topic as it has been a recent topic of conversation and affects many of your contributors. 

In general, C-Corporations meet the safe harbor for deducting their contributions on their federal tax returns since the tax credit is offsetting state taxes that would have been paid and deducted at the entity level otherwise. 

S-Corporations (and other pass-through entities) have a higher hurdle to jump since the tax credit offsets income taxes that would not have been paid at the entity level and therefore are not deductible as income tax expenses. Keep in mind that there is a provision for S-Corporation owners that fall below the $10,000 state and local income tax deduction limit to deduct these contributions on their individual federal return as state taxes, but in our experience, most S-Corporation shareholders do not fall below this limit, and it is tough to determine at the entity level at the time of the contribution whether this will be applicable. 

There is an option for pass-through entities to deduct the contributions as a ordinary and necessary business expenses, perhaps as advertising or promotional expense, but the expenditure must meet two criteria to be a deductible expense. First, the expenditure must bear a direct relationship to the taxpayer's trade or business. Second, the expenditure must be made with a reasonable expectation of financial return commensurate with the amount of payment or transfer. Therefore, in order to be deductible as advertising, the company should consider what benefits they are receiving and whether it can meet these two tests. In order to determine if the second test can be met, the company may want to consider the cost of advertising and the benefits they would receive from a non-STO promotional company. If the benefit received from the STO contribution is not commensurate, then the contribution likely wouldn't qualify as an advertising (or ordinary and necessary business expense) deduction.  

Additional analysis as it relates to Arizona STOs can be found in this blog post by Ed Zollars, CPA. 

Not-for-Profit Parking Tax Repealed!


A holiday gift for not-for-profits was included in the December 2019 bill to fund the government. The Act repealed the "parking tax" that was imposed on not-for-profits as part of the 2017 tax reform bill. The original law required nonprofit employers to include the expenses attributable to employer-provided parking as unrelated business taxable income, resulting in a tax bill for many not-for-profits that had never anticipated one. The repeal of the "parking tax" is retroactive, so if you filed a return under this law, you are eligible to amend the return for a refund of any tax paid.  

#GivingTuesday Continues to Grow


GivingTuesday.org announced that $511 million was raised online on the 2019 #GivingTuesday of December 3rd. This is a 28% increase from 2018.The projected online and offline donations are projected to be a whopping $1.97 billion. 


Source: The NonProfit Times
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