501(c)(3) is a non-profit status that you apply for. This makes you "legitimate" as a non-profit with the IRS, allows donors to claim contributions as tax deductions, may be required if you go after grants. It's definitely got some nice benefits. However, it also formalizes you as a group. You are now on the IRS' radar and you need to be sure to file what you need to properly and on time each year.

What lots of organizations seem to do is "nothing". Technically, they aren't operating legally - as far as the IRS is concerned (if they gross more than $5000). If someone gets mad at the organization and reports you or something goes awry, the organization (and its officers) could perhaps find itself in trouble. But then again, how often to you hear about that happening? If you don't "exist" and you don't get caught, then there's nothing to file and keep up with. Believe me, I can understand the temptation to operate this way.

Whether or not you should file an IRS return isn't based on how much you carry forward or how much you "make" (like profit) each year that can then be plowed back into the school. It's based on the gross amount you bring in. So, say you have a catalog sale and the kids sell $8,000 worth of goods, you pay the company 50%, and you keep $4,000. Your gross was $8000.

If you are a 501(c)(3), then you should file a 990/990EZ if your gross receipts are more than $25,000. With less, you can file the form if you want to.

If you aren't a 501(c)(3), you are a business. The IRS doesn't know if you are donating all your profits to charity (a school) or if you a fledgling company trying to become the next Dell. You are just an entity that is earning income and must account for it. That's not to say you will necessarily PAY any taxes, but you are supposed to file.

As I stated earlier, I'm merely repeating what the IRS has told me (more than once). Each organization needs to decide for itself what to do - and if you have the resources and the need, consult a qualified tax professional.

Good luck!

When do you even know when to file 990 or
501(c)3. We only carry a balance of $4,000.00 every year. We put all of money back into the school. The PTO keeps great records of where money is disbursed to. I don't want to be in violation. Looking forward to responses. I am not a tax person, accountant just a plain jane mom that's a volunteer but willing to learn.

I'm simply repeating what the IRS told me:

If you are a 501(c)(3) non profit, you must file a 990 or 990EZ informational return if you gross more than $25000.

If you aren't officially set up as such a non profit with the IRS, you are considered a business. If you gross more than $5000, you should be filing an annual corporate return.

(It's important to understand GROSS: If you sell $7,000 worth of items, had $4000 in cost, and made $3000 profit - it's the $7,000 number that counts).

That's it in a nutshell for federal taxes. However, we know there are thousands of PTOs and booster clubs out there who file absolutely nothing for years and years and just take their chances. While I doubt there's any big effort on the part of the IRS to track these groups down, if it does come to light - the Board members could be the ones liable for financial and even criminal penalties.

The other tax you should be concerned with is SALES TAX. This is controlled by your state government and rules vary. If you are set up as tax exempt with your state, you may be exempt from almost all sales tax. Or, it might be a partail exemption. For intance, in Texas we can exempt two fundraisers a year. We pay sales on everything else that's taxable.

This forum is a great place to exchange information and get these type of questions answered.

i would like to know about this also, our treasurer is now going through everything and paying seperate taxes on all of the individual fund raisers and events...

If our PTO does not have Non-profit status are we required to pay Tax on any monies in our accounts each year. A friend told me that we should pay tax, but I'd love to know if we do or don't.