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Ask Amy Smith – The 501 C 3 Blues

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ASK AMY SMITH
by Amy Smith for The Dance Journal

This column in the Dance Journal seeks to improve the financial literacy of dancers and artists in all creative disciplines, so that they may develop sustainable practices and further expand the reach of their creativity. Questions for Amy may be mailed to askamy@philadelphiadance.org for consideration.

1. This may seem to be a bit obvious but I am a relatively new 501 C 3. So what reports and returns is an exempt organization required to file annually?

Dear New Nonprofit,

I’m just going to admit it outright:  it is a real frustration of mine that artists apply for and receive non-profit status from the IRS without fully realizing how much work, compliance, and reporting is required.  In today’s funding climate, when many foundations are funding artists directly or through fiscal sponsorhip, having a non-profit status can be much more of a burden than a boon.  As a non-profit you must have a board, and ideally you should find people to serve on your board who have experience running a non-profit, or at least have served on other non-profit boards so they can help you shoulder the burden.  As far as reporting goes, you must file a 990 with the IRS each year, 135 days after the end of your fiscal year.  If your annual budget is less than $50,000 you can file the 990-N, or “postcard” 990, which is much, much simpler than the 990EZ (which is not at all “EZ”).  In addition, you must register and file annually (same due date as the IRS) with the PA Bureau of Charitable Organizations.  The BCO has additional reporting requirements above and beyond the IRS’, so you would do well to visit both websites and familiarize yourself with the requirements.  And once you really get a handle on what is necessary and required in terms of the financial recordkeeping, board meetings, and reporting compliance, meet with your board and have a Big Picture conversation about whether or not you are truly ready to run your own non-profit.  Taking your question as evidence that you may not be ready, I might advise you to put the 501c3 to sleep for a while, and work with a fiscal sponsor first.

2. I have had a 501 C 3 status in Pennsylvania for 5 years now. We are thinking of changing the name of the company. What do I need to do to protect my non-profit status? Will I need to file all over or can I just submit a name change?

Dear Artist Formerly Known as Another Name,

Changing the name shouldn’t be too big a deal.  When Headlong started the Headlong Performance Institute, we just filed a DBA (“doing business as”) form with the State of PA which allowed us to do business with that name, in addition to using the name Headlong Dance Theater.  We then took that DBA form to the bank so that we could add that name to our commercial bank account.  I believe you could do something similar and then just stop using the original name in most contexts, except when reporting to the IRS and PA BCO.  A true name change where you give up the old name forever is probably more complicated but also probably unnecessary.  P.S. did you catch my Prince reference?

3. What is the advantage of becoming a 501 C 3 vs just using a fiscal conduit? Is there any disadvantage to using a fiscal conduit for donations? And who would you recommend as such a conduit in the Philly area?

Dear Conduited,

The advantage of becoming a 501c3 is that you can apply to the (ever shrinking) list of foundations that will only fund artists who have their own non-profit, rather than using a fiscal conduit.  That list is small and getting smaller as more and more foundations realize that not every artist needs their own non-profit, and that many artists don’t have the skill set or inclination to fulfill the recordkeeping and reporting requirements, nor do they have the financial resources to be able to hire someone to do it for them.  I would say as a general rule, if you have around $100,000 in annual income for a few years in a row, then you should seriously consider your own 501c3.  If not, stick with the conduit route.  There is no disadvantage to using a conduit for donations.  Your uncle Fred will be able to write off his donation whether he donates to a non-profit you own or whether he donates to you through a conduit.  The only difference is that the conduit usually takes a percentage of the donation (usually 6-10%) because they are fulfilling the recordkeeping and reporting requirements on your behalf.  I know there are local non-profits that have served or are currently serving as fiscal sponsors to artists, like the Painted Bride, the CEC, Philadelphia Dance Projects, and Urban Affairs Coalition.  Check with them directly to find out more, or ask your artist friends who they use.  You also might look into Fractured Atlas, which is based in New York but many Philadelphia artists use them.  Artists who want to recommend one of these or any other conduits, please do so in the comments below.

4. On my tax filing for my non-profit, they ask for a list of donors. Is this list public information or can it remain private? Not sure what has to be publically disclosed as a non-profit.

Dear Private Private,

If you go to www.guidestar.org you can peek at what is public and what is kept private in a non-profit’s 990.  Basically everything is public except for Schedule B, on which you list large donors (I believe the threshold is $5,000) by name.  So as a non-profit, anyone can see how much your total donations were, but not the breakdown of who gave what.  And while you are on the Guidestar website, poke around a bit, it’s fun to see what you can glean from other organizations’ 990s.

5. I have been getting a bunch of questions from donors to our 501 C 3 organization as to what is considered deductible or not? Examples with regards to actual cash donations, donation of time, donations of airline miles, donations of equipment (new and used), etc. Is there some reference or guideline I can point them to as to what is or isn’t allowed?

Dear Cash is King,

In simple terms, cash is always fully deductible, and that is why cash is always the best donation.  If you promise a gift to your donors for giving, they should subtract the value of the gift (Tote bag, anyone?  Tickets to your next show?  Mug?) from the amount of the donation.  Ideally you should write them a letter thanking them for the donation and specify the value of the gift.  The donation of time is NOT deductible.  It’s just called volunteerism, and there is no tax benefit – the benefit is good karma.  As to frequent flyer miles, they are not considered “property” if the donor didn’t pay cash for them on the front end, so they are NOT deductible.  As to equipment, etc. you can write a letter to the donor, saying “thank you for the gift of the printer worth $200”, and they can use that to deduct the $200 value of the printer.  But please see IRS Publication 526 for more information – the rules do change periodically, and you want to make sure you understand them.

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