Tax Deductible Contributions to Nonprofit Schools

Taxpayers can claim deductions towards their annual tax bill from donations they make to recognized 501(c)(3) organizations. Qualified 501(c)(3) groups typically include nonprofit schools operating solely for literary and education purposes.

But if the school significantly participates in activities that are unrelated to its charitable purposes, then the donation may not be tax deductible.

Here are some relevant guidelines from the IRS about donating contributions to your local nonprofit schools:

Value of School Donations
When filing your personal taxes, you can deduct the monetary value of cash or items you donated to a nonprofit school during the tax year. The process requires you to determine the fair market value of the donation on the day you gave it away.

There are various ways to find the valuation based on the type of item, and while the IRS won’t endorse one method over the other, they firmly state that the value must accurately indicate pricing that the item could sell for in an open market. An example would be donating clothes - you could check local thrift shops to find out how much the clothes would sell for or find prices from online stores selling similarly conditioned clothing.

Receiving Benefits from Nonprofit School
If the school gives you a gift or some benefit in return for your contribution, then the IRS requires you to reduce the value of your donation by the value of the gift you received from the school. The gift may be something of little to no monetary value such as a certificate, card, or plaque - in such a case, you won’t have to reduce your donation. But if the school happens to give you a $50 shopping card, you’ll need to subtract that amount from the value of your contribution.

Proof of Contribution and Penalties
Beware of filing overvalued charitable contributions. The IRS charges 20% of the underpaid tax from a valuation that exceeds 150% of its actual value and 40% from valuations exceeding 200% of normal value.

Furthermore, the IRS can deny your deduction if you don’t have proper documentation. You are responsible for maintaining a record of all your contributions - cash or items. You should have a description of the contribution and the name of the organization that received it. If your donation was cash, you should provide a bank statement, canceled check, or receipt. For large cash contributions, usually over $250, the IRS requests a written acknowledgment or receipt from the organization before deducting the donation.

Claiming tax deductible contributions towards nonprofit schools is only possible through itemizing your personal expenses. Taxpayers can claim itemized deductions on Schedule A of IRS Form 1040 if total deductible expenses are greater than standard deductions for the tax year. And for schools needing to report received contributions, you can do so by submitting a Schedule B with your IRS 990 form.

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How Schools Can Acquire 501(c)(3) Tax-Exempt Status

It’s typical for schools and Parent-Teacher Association (PTA)/Parent-Teacher Organization (PTO) to be recognized as a 501(c)(3) organization and have tax-exempt status. However, there is a common misunderstanding when a school has 501(c)(3) status, but the PTA/PTO does not and vice-versa.

Both groups are eligible to apply for tax-exempt status, and with it comes benefits from being a 501(c)(3) organization. Here is some important information for schools or PTAs/PTOs interested in becoming tax-exempt.

Exemption Status for Schools
Schools usually receive a tax identification number (TIN) from the IRS - this number works much like a regular social security number, so there isn’t any tax exemption implied with it. The IRS typically views public schools as government entities in which they are automatically exempt from federal income tax.

Even though schools are automatically tax-exempt, that doesn’t mean the IRS recognizes them as 501(c)(3) groups. Like many other organizations, schools must complete an application to receive 501(c)(3) status from the federal government. Any organization seeking exemption status has to file IRS Form 1023 - if approved, the IRS mails a “Determination Letter” that identifies the organization as a 501(c)(3) group.

You can ask your school’s principal whether or not it has 501(c)(3) status - the determination letter from the IRS is mostly likely filed in the school or district office.

Exemption Status for PTAs/PTOs
A PTA/PTO can operate independently from the school - in such cases, the PTA/PTO is not automatically tax-exempt and will need to file a 1023 form to apply. Conversely, if the PTA/PTO is storing its funds using the school’s tax identification number, then the organization is seen as an extension of the school.

Most parent-teacher groups use their school’s TIN thinking that it’s common; however, experts explain that as long as the organization’s money is not from an account using the school’s TIN, then their group classifies separate from the school. If it is separate, the PTA/PTO can register for its own tax identification number.

There are a few services available for PTAs/PTOs to automatically register as a 501(c)(3) tax-exempt organization without submitting a Form 1023 or paying any filing fees. These services can also assist with getting a federal TIN, state incorporation, and 990 returns for your group. After receiving 501(c)(3) status. Donors may ask for a copy of the determination letter - this letter ensures your organization is a federally recognized charity and that charitable contributions towards your PTA/PTO are tax deductible.

Why Apply for Section 501(c)(3) Status
Other than preventing income taxes imposed on revenue earned by your school or PTA/PTO, there are more benefits with receiving 501(c)(3) status. With an exemption status, you can request for an increased number of grants - public and private donors usually require tax-exempt status for funding which can bring in more money and resources for the school.

Organizations that are recognized as 501(c)(3) legally exist as separate entities. Key members and employees typically aren’t held directly responsible for debts from the organization though special circumstances may apply. And with any litigation event, courts can only access assets that belong directly to the organization - not from individual members.

The most common advantage is that purchases are exempt from state sales tax. Keep in mind that regulations may vary from state to state, so check with your nonprofit association for more information. And once your organization or school receives its tax-exempt status, remember to stay compliant with IRS rules and file your 990 form each year.

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Form 990 for PTAs & PTOs

Wondering how PTAs and PTOs can make use of Form 990?

Here’s the considerations for Form 990 and Parent Teacher Associations and Parent Teacher Organizations.

Difference between PTA & PTO

The National PTA is a formal membership organization headquartered in Chicago with a 105-year history of working for children. Local groups that choose to belong to the PTA must pay dues to state and national organizations and abide by the rules set by those.

PTO is a more generic term. It usually represents the thousands of groups that remain independent of the PTA.

Responsibilities of PTA

PTA is committed to advocacy on behalf of all the children in the nation. The official PTA’s motto is “Every child. One voice.” PTA aims to make every child’s potential a reality by engaging and empowering families and communities to advocate for all children.

Exempt status & filing requirements

The official PTA is a registered 501(c)(3) nonprofit association. A PTA starts local units through state-level associations. Each local unit is an independent nonprofit and is set up in accordance with state and federal laws.

PTOs can be started by anyone, but will need to go through their own process to become tax exempt.

If you have any questions about filing Form 990 for your PTA or PTO, reach out to the e-filing experts at ExpressTaxExempt by phone at 704.839.2321 or by email at Support@ExpressTaxExempt.com.

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