If you’re a nonprofit with unrelated business income, you need to know how to report unrelated business income to the IRS. Nonprofit taxes are not fun. However, if you keep proper records, they can be easier. This article is all about reporting unrelated business income.
Let’s get right to it.
Normal Nonprofit Tax Reporting
As a nonprofit, you have to report certain information to the IRS annually. Among that information, you have to tell them where your revenue comes from and how you spend your money.
Generally, you file your nonprofit taxes on form 990 or 990-EZ. Which one depends on the revenue thresholds.
Reporting Unrelated Business Income
If your organization has unrelated business income of $1,000 or more, you’ll need to file form 990-T. If you have multiple unrelated businesses, you still only file one 990-T for your organization. However, each business would report the income on a separate Schedule A attached to form 990-T.
Note: If your organization has over $1,000 in UBI, you also have to make your 990-T forms available for public inspection.
If your organization anticipates owing $500 or more in taxes, the IRS requires you pay quarterly estimated taxes. You have to pay these by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year, or the first non-holiday weekday after the 15th. To figure out your estimated tax, you need to use form 990-W. That’s the worksheet provided by the IRS.
Any income subject to the UBI taxation is taxed at corporate tax rates. Right now, that’s 21% of the Unrelated Business Taxable Income (UBTI). To figure out UBTI, first you have to take all UBI and subtract those expenses related to its generation. This is part I of form 990-T.
In Part II, you calculate the total tax owed. Next, in Part III, you calculate how much is still owed after credits and prior payments. You might end up with a tax return if you’ve overpaid through your quarterly estimated tax payments.
Finally, in Part IV, you make certain certifying statements and add additional information.
Then all you have to do is sign, date, and submit. I hope this makes it seem easier and more manageable.
Different types of unrelated business income require different forms. For example, if your UBI is from games of chance or bingo, you have to include Schedule G with your 990.
Most nonprofits won’t ever have to worry about UBI. For those that do, this form is actually fairly simple. The hardest part of UBI is the record keeping. You need to make sure you can prove everything you submit to the IRS or you could be subject to fines or even criminal penalties.