What tax measures can non-profit organizations take to minimize their tax burden?
July 5, 2022 | 50,00 EUR | answered by Björn Ley
Dear tax consultancy,
I am Ralf Voigt and I run a non-profit organization that is dedicated to promoting children and young people in our region. We have been active for five years now and have received some donations and grants during this time to implement our projects.
However, in the past few months, we have noticed that our tax burden is increasing and we are wondering what tax measures we can take to minimize it. We want to ensure that we are using our financial resources optimally and not paying unnecessarily high taxes.
Our income mainly consists of donations, membership fees, and grants. We also have some projects that generate income, such as charity events or workshops.
Our concern is that the increasing tax burden will leave us with less money for our projects, and therefore we will be able to help fewer children and young people. That's why we would like to know what options are available to minimize our tax burden and how we should proceed.
We look forward to your professional advice and thank you in advance for your help.
Best regards,
Ralf Voigt
Dear Ralf Voigt,
Thank you for your inquiry and your commitment to promoting children and youth in your region through your non-profit organization. It is important that you consider how to best utilize your financial resources to implement your projects effectively. I am happy to provide you with some tips and advice on how to minimize your tax burden.
First and foremost, it is important to clarify which income is taxable and which is not. Donations, membership fees, and grants are usually tax-exempt as long as they do not constitute a quid pro quo. Income from events or workshops may be taxable if they do not directly serve the tax-exempt purpose.
It is also important to keep track of your expenses and document them properly. Only expenses that directly serve the tax-exempt purpose can be claimed as tax-deductible. This includes expenses for project implementation, purchase of materials, or payment of employees.
One way to minimize your tax burden is to apply the tax exemption for instructors. If you employ individuals who volunteer and receive compensation, you can keep this compensation tax-free under certain conditions. There are specific limits that must not be exceeded.
Furthermore, you should check if you are taking advantage of all possible tax benefits. This includes the possibility of corporate tax exemption for non-profit organizations or issuing donation receipts to provide tax relief to donors.
It is advisable to consult with an experienced tax advisor to discuss your tax situation in detail and develop tailored solutions. A good tax advisor can help you minimize your tax burden and optimize your financial resources.
I hope these tips are helpful to you and wish you continued success with your projects to promote children and youth.
Best regards,
Björn Ley, Tax Advisor
