Which revenues of a non-profit organization are taxable?
August 5, 2023 | 50,00 EUR | answered by Dora Krause
Dear Tax Advisor,
I am Piotr Vollmann and the chairman of a non-profit organization dedicated to environmental protection. Lately, we have been receiving increased donations and funding, which is of course very pleasing. However, I now have some questions regarding the taxation of our income.
So far, we have mainly received membership fees and donations that we use for our projects. However, we have also received funding from various foundations. I am wondering if these income sources are taxable and how we should correctly record them in our accounting.
Furthermore, we organized an event to raise donations for our projects. Again, I am questioning if these income sources are taxable and how we should properly account for them.
I am concerned that we may be making errors in the taxation of our income and could potentially run into problems with the tax office. Therefore, I would be very grateful if you could explain to me exactly which income sources of a non-profit organization are taxable and how we should handle them correctly to avoid tax issues.
Thank you in advance for your help and support.
Best regards,
Piotr Vollmann
Dear Mr. Vollmann,
Thank you for your inquiry regarding the taxation of the income of your non-profit organization dedicated to environmental protection. It is understandable that you are concerned about how to correctly handle the various sources of income to avoid tax issues. I would be happy to explain in detail which incomes are taxable and how you should properly record them in your accounting.
First and foremost, it is important to know that non-profit organizations are generally exempt from corporate tax as long as their income and expenses serve exclusively and directly charitable purposes. This includes environmental protection projects, such as those pursued by your organization. Membership fees and donations are considered tax-advantaged income, as they serve to finance the charitable purposes of the organization.
Funding from foundations is usually also tax-advantaged, as long as it is used to support the organization's statutory purposes. Therefore, you do not have to pay taxes on these incomes, but you should still accurately record them in your accounting and be able to demonstrate that they were used for charitable purposes.
Income from events, such as the festival you organized, is generally taxable unless it serves the non-profit activities of the organization and not commercial purposes. However, since you organized the festival to raise donations for your projects, you can treat the income as tax-advantaged. Nonetheless, you should ensure that the income is clearly labeled as donations and used for charitable purposes.
To avoid tax issues, I recommend that you carefully document all incomes and expenses and demonstrate that they serve exclusively charitable purposes. Maintain proper accounting records and adhere to tax regulations for non-profit organizations.
I hope that my explanations are helpful to you and I am available for any further questions.
Best regards,
Dora Krause
Tax Advisor
