We're happy to announce that the Ada Initiative has been granted tax-exempt status in the United States, effective March 18, 2011! This is excellent news for both the Ada Initiative and our supporters. The rest of this post will explain what this accomplishment means and answer as many questions as possible.
First, an urgent request: If you have donated to the Ada Initiative and your employer matches donations to U.S. non-profits, please submit your request for a matching donation by June 1, 2012 as that is the deadline for many matching donations. We estimate that we qualify for at least $5,000 USD and perhaps as much as $10,000 USD or more in matching donations, which for us is enough money to fund an entire program the size of Ada's Advice. See the entry on matching donations in our FAQ below for more information.
If you're one of the many people who has been waiting to donate until we have tax-exempt status, you can donate to the Ada Initiative now.
Why is tax-exempt status important?
The United States government supports non-profits working for the public good in two major ways. First, it grants qualified non-profits exemptions from certain taxes. Second, it allows people who donate to tax-exempt non-profits to deduct those donations from their income on their U.S. tax returns (tax-deductible donations). In other words, a non-profit organization with tax-exempt status can save a lot of money on taxes and raise more money in donations, and it can use that money to achieve its mission (in our case, increasing the participation and status of women in open technology and culture).
Not many people know that an organization can be a non-profit but not tax-exempt. Registering as a non-profit is trivial, but getting tax-exempt status is much harder. This is due in part to a long history of organizations and people trying to avoid paying taxes by illegally funneling money through a non-profit. The United States Internal Revenue Service (the IRS, responsible for collecting federal taxes) has created a large set of rules for tax-exempt organizations and requires a lengthy application and examination process before it grants tax-exempt status to a non-profit.
The Ada Initiative and tax-exempt status
If you're a regular reader of this blog, you'll know we've blogged extensively about our application for tax-exempt status. We applied for tax-exempt status in October 2011, and the IRS granted us tax-exempt status on May 14, 2012, extending retroactively to the date of our incorporation, March 18, 2011.
We put a lot of effort and money into acquiring tax-exempt status swiftly because it helps both our donors and the Ada Initiative. In particular:
- U.S. donors can now claim all donations to the Ada Initiative, past and future, as tax-deductible
- Donations to the Ada Initiative now qualify for many employer donation matching programs
- The Ada Initiative qualifies for many free or discounted services, including online payment processors
- The Ada Initiative can use services available only to tax-exempt organizations
- Donors have more confidence knowing we meet the IRS standards for a tax-exempt non-profit
As a concrete example of the benefits, most online payment processors only allow tax-exempt non-profits to collect donations with their service (PayPal being the notable exception). Many of our donors wanted options other than PayPal for donations, such as Google Checkout, and we now have the option of providing that.
We want to take this opportunity to thank our lawyer and law firm, Michael Durham of Caplin & Drysdale (coincidentally, the same law firm where Stephen Colbert's lawyer Trevor Potter works). Without Michael's expertise in non-profit law, our tax-exempt status would have been delayed for many more months, causing us to miss some crucial matching donation deadlines. We also thank all of our supporters, who made it possible for us to do this work, and our advisors and board members, who gave us assistance and advice.
Q: I donated to the Ada Initiative already, what does this mean for me? A: If you file a U.S. tax return, your donation is retroactively tax-deductible. Note: Consult your tax advisor before making tax decisions. The Ada Initiative is not qualified to provide tax advice. We can offer suggestions for discussion with a qualified tax advisor but are not qualified tax advisors ourselves. If you already filed your taxes for the time of your donation, you should consider filing a revised tax return. If you have not filed your taxes for the time of your donation, simply treat your donation like any other tax-deductible donation. In either case, you should also find out if your employer matches donations to non-profits and apply for the matching donation. Restating a tax return costs time and money and may not be worth it for the money you save. Here is a quick guide to estimate the benefit of restating your tax return.
Q: I donated to the Ada Initiative already, what does this mean for me?
A: If you file a U.S. tax return, your donation is retroactively tax-deductible.
Note: Consult your tax advisor before making tax decisions. The Ada Initiative is not qualified to provide tax advice. We can offer suggestions for discussion with a qualified tax advisor but are not qualified tax advisors ourselves.
If you already filed your taxes for the time of your donation, you should consider filing a revised tax return. If you have not filed your taxes for the time of your donation, simply treat your donation like any other tax-deductible donation. In either case, you should also find out if your employer matches donations to non-profits and apply for the matching donation.
Restating a tax return costs time and money and may not be worth it for the money you save. Here is a quick guide to estimate the benefit of restating your tax return.
|If you donated||Refund for 15% tax rate||Refund for 25% tax rate||Refund for 35% tax rate|
We will be re-issuing valid donation receipts to all Ada Initiative donors during this week by email. If you do not receive one, that is probably because there was a problem with delivery to the email address we have on record for you. Email us and request a receipt explicitly if you do not receive a receipt by May 28, 2012.
A: Many employers will match employee donations to tax-exempt non-profits. For example, Google will match donations 100% up to a certain per-employee limit if the request to match the donation is submitted within one year of the donation. Other company's programs may differ. To find out if your donation is eligible, ask your HR department or search for "matching donation" on your company intranet. Often matching donation applications require the recipient's Employer Identification Number (EIN). Ours is 45-1135048. You may also need a copy of our letter of determination from the IRS. If your matching donation program relies on looking up organizations in the public IRS database of tax-exempt organizations, keep in mind that we will not be in that database until the next update on June 14, 2012 (see this question for more detail). You will also need the valid donation receipt that we are emailing this week.
Please keep in mind that many matching donation programs have deadlines for applications, often one year after your donation. Since many major donations were made in June 2011, the deadline for your matching donation may be in only a week or two!
Q: I want to donate now, what does this mean for me?
A: It means that if you file a U.S. tax return, you can subtract the amount of your donation from your taxable income. Talk to your tax advisor for details. You can donate here.
Any new donations would also be eligible for employer matching donations immediately, if your employer has a matching program. You should receive an appropriate receipt by email automatically after making your donation.
Q: I don't file a U.S. tax return, does this affect me?
A: It does not affect your taxes. This tax-exempt status is granted by the U.S. government and only applies to U.S. tax returns.
If you work for an organization with headquarters in the U.S. or significant business presence there, your donation may still be eligible for employer matching. Check your company policy as discussed in the question about matching donations.
Q: Do you also plan to apply for tax-exempt status in other countries?
A: We very much appreciate that donors outside the U.S. would prefer to receive tax deductions too, but due to the high costs involved we currently have no plans to seek charitable or tax-exempt status in any country other than the U.S. Applying for tax-exempt status is often very expensive and may impose significant additional restrictions on our activities. Since we have significant operations in the U.S. and the bulk of our donations come from the U.S., it made financial sense for us to apply for tax-exempt status in the U.S. This isn't the case for other countries; for example, while we also operate in Australia, it is much more difficult and expensive to get tax-exempt status in Australia than in the U.S., and as a result it does not make financial sense to become tax-exempt in Australia.
Q: Does this restrict the Ada Initiative's activities?
A: Yes, we must obey the rules for tax-exempt organizations in the U.S. These include restrictions on how we spend money and requirements to file detailed financial reports.
Q: Is this decision preliminary or final?
A: This is a final grant of tax-exempt status. It can be revoked only if the IRS concludes that the Ada Initiative is not obeying the rules for non-profits and issues a revocation of our tax-exempt status. You can search for revoked tax-exempt grants here.
A: The IRS operates a tax-exempt organization lookup service. The Ada Initiative will be listed in that database after the next time they update the database, on June 14, 2012. Until that time, you can use a copy of our letter of determination to prove tax-exempt status. An EIN (Employer Identification Number) is sometimes used to verify tax-exempt status. Ours is 45-1135048. Again, keep in mind that the IRS public database of tax-exempt organizations will not contain our entry until June 14, 2012.