Top 4 Pervasive Myths about Nonprofits

Everyone knows about nonprofits—they are groups or organizations that help.  Some organizations help people, some have a mission to help animals or the environment, and some are formed to help communities or society.  As common as nonprofits are, there are a few myths about nonprofits that are just as common, and that I dispel with clients on a regular basis.

MYTH #1: Nonprofits can’t make a profit.  (Or, shouldn’t make a profit.)  This myth is, in my opinion, the most common and the most detrimental.  Nonprofits can make a profit, and those that are run well do make a profit.  If a nonprofit breaks even, or loses money every year, it won’t be around long at all.  The word “nonprofit” is a misnomer–nonprofits can make a profit; what matters is what is done with the profit.

A nonprofit is like a for-profit business except that profits can’t be distributed to any private individual.  With for-profit corporations, profits are distributed typically through dividends to shareholders.  Nonprofits belong to the public, and profits come back to the organization so it can fulfill its mission in helping the public, not to private individuals.  This leads to the second common myth…

MYTH#2: Nonprofit directors, officers and staff can’t be compensated.  To the contrary, nonprofit employment makes up about 10% of private employment in the United States.  Much discussion and controversy surround how much the director of a nonprofit should make.  Naturally, people want to donate money to an organization to help its cause, not to excessively compensate its director or officers.  The key with compensation is for it to be “reasonable.”  For nonprofits with the financial means to compensate its director (desirable to attract qualified people—see Myth #1), a very general rule to determine “reasonable compensation” is that director compensation should not exceed 10% of revenue.  A salary of $200,000 would likely be considered reasonable for a nonprofit with $2 million in revenue.

MYTH#3: Donations to nonprofits are tax deductible.  If the nonprofit has received tax-exempt status from the IRS, then a donor can take a deduction on his or her taxes.

A nonprofit is a state entity.  Donations to a nonprofit are tax deductible only if the nonprofit has received federal tax-exempt status from the IRS, designated most commonly as a 501(c)(3) charity (donations to some 501(c)(4) organizations and organizations under other IRS sections are tax deductible but are less common).  If a nonprofit does not have tax-exempt status, either as a 501(c)(3) or other organization, donations to it are not deductible to the donor.  People see “nonprofit” and often assume donations are automatically tax exempt.  If you plan to claim a deduction on your taxes, check if the nonprofit has tax-exempt status from the IRS first.

MYTH #4: Tax-exempt nonprofits do not pay taxes.  Tax-exempt nonprofit organizations do not pay federal taxes, sales tax and property taxes.  They do, however, pay employee taxes (Social Security and Medicare) and, in some situations, pay income tax.

If you would like to form a tax-exempt nonprofit organization, contact me at julie@juliemillslaw.com.

Prenups and Millennials

A prenuptial agreement is an agreement that concerns ownership of a marrying couple’s assets should the marriage fail.  According to the American Academy of Matrimonial Lawyers, 51% of attorneys surveyed cited an increase in the numbers of millennials seeking counsel to prepare prenups.  The top three reasons given for getting a prenuptial agreement were 1) protection of separate property, 2) alimony and spousal maintenance, and 3) division of property.

Does this signify that millennials are more “prepared-conscious”?   Maybe.  Millennials are conscious of debt and trying to be free from it.  Saving money appears to be a goal for many in the millennial demographic.

Or, the reason for the increase in millennials pursuing prenuptial agreements might just be that they are marrying later, and have more assets to protect.  When you marry young, you are combining nothing with nothing.  When you marry in your late twenties, and in your thirties, you have likely been working and saving, perhaps you’ve received inherited assets, you have likely furnished an apartment or home.  A prenuptial agreement is the most effective way to safeguard your assets.

To discuss if a prenuptial agreement is for you, contact me at julie@juliemillslaw.com.

Newly-divorced parents, and the start of school: create a “School Parenting Plan”

Now that the July 4^th holiday is over, it signals to me that half the summer is over.  It wasn’t like this when I was in school, where we didn’t return until after Labor Day.  But now, July 4^th seems to be summer’s midpoint.  With a new school year approaching, I’d like to offer some tips to newly-divorced readers who have children about to head back to school.

We all remember the anxiety of starting a new school year.  Adding divorce and two households instead of one results in compounded anxiety for children.  Parents must find ways to manage the routines of homework and after-school activities with an ex spouse in order to bring structure to their children’s lives.  To help children ease into a new school year, divorced parents should develop a shared School Parenting Plan.

First, start a plan together that deals exclusively with the school year.  Simply agreeing to develop this plan is the first step, since it shows that you both value your child’s academic performance, and can come to agreement on school-related matters.

Second, determine before school starts how you, as parents, will deal with the school.  Prepare the school and teachers with information about your new situations.  Will both parents attend parent-teacher conferences?  Will you attend all meetings related to your child together?  Will you request separate conferences and meetings?  Who will be dropping off and picking up your children if they don’t ride the bus?  Will stepparents attend meetings and conferences?

Third, develop terms and conditions with school work.  Be as specific as possible.  Will one parent assume responsibility for daily homework?  Will the other parent assume responsibility for larger assignments, research projects, the science fair, etc.?  What does “assuming responsibility” mean—the parent will work with the child, know what the school expects, help the child meet deadlines?  Will one parent be responsible for one child, the other parent responsible for another child?

Fourth, address parental responsibility with after-school activities and sports.  Will one parent be responsible for taking the kids to practices, the other parent to games?  Or one parent with the first four weeks of responsibility, the other parent will be responsible for the last four weeks of a sports season?  Mom is responsible for activities on Mondays, Wednesday and Fridays, while Dad is responsible for Tuesdays, Thursdays and Saturdays?  What about financial considerations—who will be paying for what?

Fifth, sync your routines as much as possible, and keep a shared calendar.  Try to set the same rules around homework, dinner and bedtime so going from the routine at Mom’s house to Dad’s house is more predictable.  A shared calendar, such as Google Calendar, means that everyone has the same expectations and knowledge regarding everyone’s school schedule.

Parents who work together on a shared School Parenting Plan ensure a more stress-free and seamless transition for their kids from summer to the new school year.  Do you want to develop a shared school parenting plan?  Do you have a plan that has worked well?  If you have any questions regarding school parenting plans, please contact me at julie@juliemillslaw.com.

The new Tax Act, and benefits to 529 plans and ABLE accounts

The new Tax Cuts and Jobs Act brings welcome changes for families with young children, and children with disabilities.

First, 529 plans can now be used to pay for K-12 tuition.  Traditionally, 529 plans were used only for higher education expenses.  Where families relied upon the Coverdell Education Savings Accounts to help pay for K-12 tuition, they can now use funds in a 529 plan without penalty.  Coverdell ESAs have several restrictions.  For example, with a Coverdell ESA you cannot make more than $110,000 a year, cannot contribute more than $2,000 per year per beneficiary, contributions must be made before the beneficiary turns 18, and funds must be spent by the time the beneficiary reaches 30 years of age, unless the beneficiary is disabled.  None of these restrictions are required by 529 plans.

Under the new tax law, up to $10,000 per year from a 529 plan can be used for K-12 tuition.  This helps families choosing private or religious schools, and in some states might help pay for homeschooling expenses.

Second, and most importantly in my opinion, is that 529 plans can be rolled into ABLE accounts.  ABLE accounts permit people with disabilities to save money without jeopardizing government benefits like Medicaid and SSI.  ABLE is short for “Achieving a Better Life Experience,” an appropriate name for a program that encourages people with disabilities to work and save money, instead of having to choose between that, or receiving benefits that will be jeopardized once you accumulate more than $2,000 in the bank.  With an ABLE account, you can save up to $15,000 a year.

The ability to roll 529 plans into ABLE accounts is important because if parents have put money into 529 plans for their children, and a child later becomes disabled, the money in the 529 can be rolled into an ABLE account without penalty.  Before the new tax law, if the 529 beneficiary became disabled, withdrawing 529 plan funds to put into an ABLE account would create income tax and would trigger a 10% withdrawal penalty.

Click for more information on the Tax Cuts and Jobs Act, 529 Plans, and ABLE accounts (“STABLE in Ohio”).

If you want to discuss these options for your children, email me at julie@juliemillslaw.com.