define adminstrative costs for a tax deduction?

Answer 1

Simple. You are required to keep accurate records to support any deductions claimed. The administrative cost is simply what it costs you in time and money to maintain those records.

That could be as simple as stuffing your annual mortgage reconciliation statement in the shoebox on the shelf of your closet or as complex as getting appraisals for the value of property donations that exceed a certain value. In the first instance the administrative cost is negligible, a few seconds of your time. In the second instance it could run into thousands of dollars and significant amounts of time.

Answer 2

hmmm..

that is a really tough one,..


State Status Not to Be Confused with Federal Tax-Exemption
Don't confuse your organization's status as a "non-profit" corporation --
once State incorporation filing has occurred -- with that of federal
tax-exempt classification. The two issues are completely distinct, and
federal tax-exemption must be pursued separately with the Internal Revenue
Service.

Although it is true that federal tax-exempt status is available only to
non-profit entities, the reverse is not true. Thus, you may be non-profit,
but not tax-exempt.

Qualifying for Tax-deductible dollars: what is "c3" or "Charity" Status?
Many types of tax-exempt status are possible (e.g., country clubs may
qualify under the tax-exemption provisions applicable to social clubs,
veterans organizations or cemetary associations may qualify under
stand-alone provisions applicable to each), but by far the largest category
available is the "charity" category defined by Internal Revenue Code
section 501(c)(3). Groups recognized as operated for charitable purposes,
via a 501(c)(3) exemption letter, are the only type of tax-exempt entity
which is across the board able to receive donations which are
tax-deductible to the donor.

When the public thinks of "tax-exempt" groups, they often equate same with
charities and the possibility of writing off donations to same. But it is
only groups who receive a 501(c)(3) determination letter from the Internal
Revenue Service who do, in fact, qualify to receive tax-deductible dollars
from the public.

Real and Potential Benefits of Qualifying for Federal 501(c)(3) Status
As noted above, the major benefit of being determined to be tax-exempt as a
501(c)(3) entity is the ability to solicit tax-deductible donations. Such
ability also makes it possible to readily apply for and receive grants from
the private foundation community.

There may be other benefits of qualifying as charitable under 501(c)(3),
but these will be applied individually to entities or organizations via
separate application to and qualification under State, local, and Postal
Service authorities. These other benefits could encompass:

- potential qualification (under State or local laws) to purchase goods and
services for use in one's charitable operation without paying sales tax
upon same

- potential qualification (under U.S. Postal regulations) to bulk mail at
non-profit rates

- potential qualification (under local jurisdiction determination in accord
with State laws) to own property exempt from paying real property taxes

- Note -- POTENTIAL sales tax, bulk mail, or real property tax exemption
devolves only upon those 501(c)(3) letter-holders who then meet the even
more stringent mandates of the granting governmental jurisdictions which
convey such exemptions. Word to the wise: don't expect that qualifying as
exempt under 501(c)(3) will allow any of these other exemptions to be
within reach. Your individual circumstances will need be evaluated with
that of the relevant jurisdiction's requirements!

Entities or organizations with 501(c)(3) status will have their
tax-exemption letter serve as a fundraising tool -- allowing corporations
and individual donors to take a tax-deduction for donations paid to you.
Similarly, the private foundation community (which is itself funded by
501(c)(3) tax-deductible dollars) will typically only accept grant
applications from groups holding 501(c)(3) status.

Disadvantages of Qualifying for Tax-deductible Dollars
The major benefit conveyed by 501(c)(3) status -- that of eligibility for
receiving pre-tax dollars -- brings with it substantial scrutiny and
burdens. Congress has imposed many detailed restrictions on 501(c)(3)
groups to ensure that the public policy of furthering charitable programs
does not unduly advance other activities by funding same with
tax-deductible dollars. The most important of these rules, unique to
operating as a 501(c)(3) entity, are as follows:

- Not too much involvement in the legislative process (either via lobbying
legislators directly or by communicating with members or the public to have
them encourage legislative results)

- No contributions of time or money, or assistance in any way (including
endorsements) to candidates for elected office or to political parties

- No misrepresentation to donors of amounts deductible particularly in
regard to payments a donor makes where benefits are returned, such as with
entry fees to fundraisers)

- The need to be funded by a variety of donors (a combination of many large
donations, or small contributions, including memberships, bundled with
larger donations). Tax rules make it unwise, if not impossible, to rest on
the success of winning large grant funding from only several sources over
multiple years!

[See Appendix A for additional information on each of the above-noted
restrictions.!!]

It is imperative that 501(c)(3)-wannabes evaluate the impact of the many
IRS rules they will labor under if such tax-exempt status is awarded. In
the absence of certainty that access to funding sources will be predicated
on tax-deductibility, Entities or organizations need also evaluate the
desireability of proceeding without 501(c)(3) status. In making such
decisions, knowledgeable tax counsel should be sought.

Other Possible Federal Tax-exemption Categories
As discussed in the previous sections, tax-exempt status is not to be
confused with one's non-profit (incorporated) status. In addition, it is
important not to equate tax-exemption with "tax-deductible". These
distinctions are important to keep in mind at all times. For Entities or
organizations who find that tax-deductible 501(c)(3) classification is not
desireable, two options remain. But to understand those options, it is
necessary to understand the benefits of tax-exemption as a whole. Any
Internal Revenue Service determination of tax-exemption means that no
corporate income tax (on a federal level) will be required. Thus, for
Entities or organizations that plan on earning and banking year-end
surpluses, tax-exempt status in general will allow such surpluses to be
earned tax free. If your Entity anticipates healthy operations at more
than a "break-even" level, you should seek counsel as to what, if any, tax
dollars will be saved via tax-exempt classification.

Assuming tax-exemption (without 501(c)(3) tax-deductibility) is desireable,
the next question is what type of (non-(c)(3)) exempt classifications are
available. Tax-exempt classification for a wide variety of organizations
operating for the common or public good is provided via Code section
501(c)(4). This section grants tax-exemption to what are referred to as
"social welfare" organizations , and will be readily available to Entities.
Importantly, and unlike 501(c)(3) status, "social welfare" classification
does not bring with it any prohibitions against lobbying or electioneering.

Summary: if an entity does not need to be tax-deductible via 501(c)(3),
status under 501(c)(4) may be sought. However, the possibility of not
applying at all for tax-exemption need also be evaluated.

State Tax-Exemption
The two types of tax-exempt status discussed in the prior sections,
501(c)(3) and 501(c)(4), solely grant exemption from the application of
federal corporate income tax. They do not automatically bring exemption
from State or other local jurisdictional income taxes. Entities or
organizations should clarify with taxing authorities their responsibility,
if any, to pay State or local business income taxes even if federal exempt
status is sought or awarded.

Pointer: most States with corporate income taxes do waive the application
of same to groups operating with federal tax-exempt status.

How to Apply for "c3" Exemption (and When)
Assuming a decision has been made to proceed with 501(c)(3) status (in
order to obtain the benefit of tax-deductibility), most Entities or
organizations will want to procure a determination letter quickly.
Application for such status is made to the Internal Revenue Service via
Form 1023.

Typical issues which are likely to arise in making a 501(c)(3) application
include:

1. Cost: filing fees are currently $500! (Small Entity, anticipating
annual income averaging no more than $10,000 per year, can qualify for a
reduced fee of $150.)

2. Timeliness: a 501(c)(3) letter will be retroactive (meaning that the
recipient of a such exempt status will be able to offer tax-deductibility
of donations back to the group's initial incorporation date) if the
application is filed within 27 months from the date of incorporation.

Pointer: for an Entity who has only recently incorporated, be aware that
back periods prior to the date of incorporation will generally not be
covered by the Entity's exemption letter, as activities conducted prior to
incorporation are not considered "owned" by the applicant.

3. Information required: a complete narrative of what activities will be
undertaken by the Entity, accomplished by who (and for what pay, if any)
must be included with the application. Also required are two years of
Entity budgets which need be tied to this narrative.

4. Technical tax stuff: Form 1023 applications should be reviewed by
knowledgeable tax counsel prior to their submission. The Form itself
contains several "red flag" and/or arcane technical points which Entities
or organizations should not answer without assistance.

How to Apply for "c4" Exemption
Application for 501(c)(4) exempt status is made to the Internal Revenue
Service via Form 1024. This Form is substantially shorter than the Form
1023 required for (c)(3) applicants, but has some similar issues:

1. Cost: filing fees are currently $500! (Small Entities, anticipating
annual income averaging no more than $10,000 per year, can qualify for a
reduced fee of $150.)

2. Timeliness: a 501(c)(4) letter is by nature retroactive (and will
cover all prior periods for the corporation which are described in the
application). Thus, unlike the Form 1023, there is no requirement that the
application be filed within any specific period of time.

3. Information required: a complete narrative of what activities have (or
will be) undertaken by the Entity, accomplished by who (and for what pay,
if any) is to be included with the application. Also required are prior
period's actual financials.