Non-profits are the heart of Howard County, Maryland, driving change and creating opportunity. However, managing the legal and tax complexities that come with running a tax-exempt organization can be daunting.

Setting up or running a non-profit organization comes with unique challenges and requirements. Whether you’re securing tax-exempt status and filing your tax exempt forms, navigating local compliance requirements, or resolving tax disputes, staying ahead of tax issues is critical to maintaining your non-profit mission and creating financial stability.

At Saltzman Law, our attorneys specialize in helping non-profits across Maryland address their tax obligations and protect their tax-exempt status. This blog explores the most common tax challenges faced by non-profits and offers insights to help you avoid costly pitfalls.

The Challenges Non-Profits Face with Taxes in Maryland

Securing and Maintaining Tax-Exempt Status

Non-profits in Maryland, including those in Howard County, must meet strict IRS and state guidelines to qualify for and maintain tax-exempt status. Filing for this status involves meticulous documentation, and compliance with operational requirements is crucial to avoid revocation.

This process involves more than filing IRS Form 1023; it requires creating a comprehensive narrative of your organization’s purpose, finances, and governance

Understanding Maryland’s Tax Obligations

While many non-profits enjoy exemptions from certain taxes, there are exceptions:

• Sales and Use Taxes: Certain transactions may still require tax collection and reporting.
• Real Estate Taxes: Property owned by non-profits in Howard County may be subject to taxation under specific circumstances.
• Unrelated Business Income Taxes (UBIT): Income from activities unrelated to your mission could trigger additional tax liabilities. Certain revenue streams may unintentionally fall into the category of unrelated business income. Here’s how UBIT might apply to common scenarios:

Renting Property:

• If your non-profit rents out property and provides additional services, such as catering or equipment rentals, the income may be considered unrelated to your charitable purpose and subject to UBIT.
• Example: A non-profit owns a community center and rents it out for weddings or private events. If the rental includes optional add-ons, such as tables, chairs, or AV equipment, this income could be taxed.

Selling Goods:

• Sales of items unrelated to your mission, even if for fundraising purposes, can trigger UBIT.
• Example: A wildlife conservation non-profit sells T-shirts and mugs featuring popular slogans. Unless these items directly support the mission (e.g., educational materials), the sales may be taxable.

Sponsorships with Advertising Components:

• Income from sponsorships that include advertising or endorsements could be subject to UBIT.
• Example: A non-profit hosts an annual gala and features a corporate sponsor’s logo on event materials. If the logo appears alongside a promotional message or endorsement, the sponsorship income may become taxable.

Income from Investments:

• Earnings from certain investments, such as debt-financed real estate or partnerships in unrelated industries, may also be subject to UBIT.

Minimizing UBIT Risks and Impacts

At Saltzman Law, we guide non-profits in evaluating revenue-generating activities to ensure compliance. Strategies include:

• Proper Categorization of Income: Determining which revenue streams qualify as mission-related versus unrelated.
• Structuring Activities Strategically: Establishing separate taxable entities for unrelated business activities to shield the non-profit’s tax-exempt operations.
• Filing UBIT Forms: Ensuring accurate reporting on IRS Form 990-T to avoid penalties.
• Tax Audits and Disputes: Non-profits are not immune to tax audits. Whether it’s an IRS audit or a local Maryland tax inquiry, these situations can result in penalties, financial strain, and damage to your organization’s reputation and longevity.

Why Howard County Non-Profits Choose Saltzman Law

Located in Columbia, MD, Saltzman Law serves non-profit organizations in Maryland and Washington D.C. We provide comprehensive legal services to non-profits, ensuring compliance with tax regulations at the federal, state, and local levels.

Our Non-Profit Tax Services Include:

• Formation and Exemption Applications: We guide organizations through the process of forming a non-profit corporation and filing IRS applications for 501(c)(3) tax-exempt status.
• Ongoing Tax Compliance: Our attorneys provide tailored advice to ensure compliance with Maryland’s unique tax requirements.
• Audit and Dispute Resolution: From IRS audits to local tax disputes, we represent non-profits at every level, including Maryland Tax Court and federal appellate courts.
• Unrelated Business Income (UBI): We help non-profits minimize risks and address tax implications related to UBI.

Tips for Non-Profits in Maryland to Avoid Tax Issues

1. Review Tax-Exempt Status Regularly: Ensure compliance with IRS and Maryland guidelines to maintain your exemption.
2. Document Transactions Thoroughly: Keep detailed records of all activities and income streams.
3. Consult Local Experts: Work with attorneys who understand the tax laws in accordance with the IRS.

At Saltzman Law, we know how important your mission is to the community—and how disruptive tax challenges can be. Let us help you stay focused on what matters most.

We don’t just offer legal services; we partner with you to protect your tax-exempt status and ensure you stay focused on what matters most—serving your community

Visit our office conveniently located in Columbia, MD, to speak with an experienced attorney about your non-profit’s tax concerns.