A nonprofit food bank runs a thrift store to fund its programs. A church rents its fellowship hall for weddings. A museum operates a gift shop. A youth sports league sells advertising space in its tournament program. In each case, the organization is pursuing its mission—but it may also be generating unrelated business income (UBI) that triggers tax obligations, filing requirements, and potential scrutiny from the IRS. The concept of unrelated business income is one of the most misunderstood areas of nonprofit tax law. Many nonprofit leaders assume that because their organization is tax-exempt, all of its income is exempt. This is not true. The IRS requires tax-exempt organizations to pay tax on income from activities that are not substantially related to their exempt purpose—even if the profits from those activities are used to support the mission. For nonprofits across Virginia and Washington DC, understanding UBI is not optional. It is essential for compliance, for protecting tax-exempt status, and for making informed decisions about revenue-generating activities. What Is Unrelated Business Income? The IRS defines unrelated business income as income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis for the organization’s exemption. Three elements must be present for income to be considered UBI: 1. It is a trade or business. The activity must be conducted with the intent to generate income, similar to how a for-profit business operates. Selling goods or services, advertising, and renting property are common examples. 2. It is regularly carried on. Occasional or infrequent activities—such as an annual fundraiser—are generally not considered UBI. The IRS looks at the frequency and continuity of the activity, comparing it to how a for-profit business in the same field would operate. 3. It is not substantially related to the exempt purpose. The activity must not contribute importantly to the organization’s mission. The key question is whether the activity serves a charitable purpose beyond generating revenue. Common Sources of UBI for Nonprofits Many activities that nonprofits engage in can generate UBI. Common examples include: Advertising revenue. If a nonprofit sells advertising space in its newsletter, website, or event program, the income may be taxable. The IRS distinguishes between advertising (which is UBI) and sponsorship acknowledgments (which are not). Rental income. Renting out space to other organizations can generate UBI, though there are exceptions. Rental income from real property is generally excluded from UBI if the property is not debt-financed and is not rented to a related party. Thrift stores and gift shops. While these operations are often mission-related (providing low-cost goods or promoting the organization’s work), they can generate UBI if the merchandise is not substantially related to the exempt purpose. Gaming and fundraising events. Bingo, raffles, and casino nights can generate UBI if conducted regularly. However, there are specific exclusions for certain types of gaming activities. Parking lots. Operating a parking lot can generate UBI, though there are exceptions for parking provided to employees or for charitable purposes. The UBI Exclusion for Volunteer Labor One important exception is the volunteer labor exclusion. Income from an activity is not UBI if substantially all the work is performed by unpaid volunteers. This exclusion allows many small nonprofits to operate thrift stores, bake sales, and other revenue-generating activities without incurring tax liability. For example, a food bank that sells donated goods in a thrift store staffed entirely by volunteers would not have UBI from that activity. Filing Requirements: Form 990-T Organizations with gross UBI of $1,000 or more must file Form 990-T, Exempt Organization Business Income Tax Return. The form is due by the 15th day of the 5th month after the end of the organization’s tax year—the same deadline as Form 990. A six-month extension is available. Form 990-T is a separate return from the annual information return (Form 990, 990-EZ, or 990-N). It requires the organization to report UBI, calculate allowable deductions, and determine any tax owed. The tax is calculated using corporate rates, and estimated tax payments may be required. Virginia and DC Considerations Virginia: Virginia follows federal rules for UBI. Organizations with UBI that are required to file Form 990-T must also file a Virginia income tax return (Form 500 for corporations) to report the UBI and pay any applicable Virginia tax. Virginia’s corporate income tax rate is 6.0%. Washington DC: The District also conforms to federal UBI rules. Organizations with unrelated business income subject to tax under IRC Section 511 must pay DC franchise taxes on that income. DC requires organizations to file the appropriate franchise tax return and pay tax on UBI. The Consequences of Non-Compliance Failure to report and pay tax on UBI can result in penalties, interest, and—in severe cases—jeopardy to tax-exempt status. The IRS has identified UBI compliance as an enforcement priority, and organizations with substantial unrelated business activities are more likely to face scrutiny. The IRS’s FY 2026 compliance strategies for exempt organizations specifically address UBI issues, including gaming income, credit union income, and hospital UBI reporting. Organizations that ignore UBI obligations risk costly assessments and reputational damage. How Nova Tax & Accounting Services Can Help At Nova Tax & Accounting Services, we help nonprofit organizations identify potential UBI, prepare accurate Form 990-T filings, and develop strategies to minimize tax liability while maintaining compliance. Our team understands the unique challenges facing mission-driven organizations and works with you to structure activities in a way that supports your mission while protecting your tax-exempt status. For more information about our nonprofit services, visit https://novataxservices.com/ or schedule a consultation. External Links: IRS Unrelated Business Income Tax IRS Form 990-T Instructions Virginia Tax Nonprofit Organizations
Required Minimum Distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year. You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 73. The RMD is calculated by dividing the prior December 31 balance of the account by a life expectancy factor from IRS Publication 590-B. If you have more than one IRA, you can total the required distributions for all IRA accounts and satisfy the requirement by taking distributions from any one or more of the accounts. However, RMDs cannot be rolled over into another retirement account. The Penalty for Missing an RMD Failing to take a required minimum distribution can result in a 25% excise tax on the amount that should have been distributed but was not. If corrected promptly, the penalty may be reduced to 10%. This makes timely RMD management essential. Strategies to Minimize Future Taxes 1. Qualified Charitable Distributions (QCDs)If you are 70½ or older, you can make a gift directly from your IRA to a qualified charity. The distribution is not taxable, and if you are required to take minimum distributions, it can satisfy all or part of that obligation. For a CFO of a 501(c)(4) organization, this strategy could be particularly valuable if you wish to support your own organization or other charities. 2. Roth ConversionsConverting traditional IRA funds to a Roth IRA before RMD age can reduce future taxable RMDs. Roth IRAs are not subject to RMDs during the owner’s lifetime, and qualified distributions are tax-free. The years between retirement and RMD age are often the optimal window for conversions. 3. Timing of DistributionsYou can take more than the minimum required amount, which may reduce future RMDs. Additionally, managing the timing of distributions can help you stay within lower tax brackets. 4. State Tax ConsiderationsFor Virginia residents, retirement income is generally taxable at graduated rates. However, Virginia offers an age deduction of up to $12,000 per person for taxpayers aged 65 and older, subject to income phase-outs. The state also conforms to federal rules for RMDs. For DC residents, state withholding on IRA distributions is voluntary unless requesting a total distribution, in which case 10.75% is the minimum. Virginia requires a minimum withholding rate of 4.00% on distributions. How Nova Tax & Accounting Can Help At Nova Tax & Accounting Services, we provide tax planning services that help individuals and business owners integrate RMD planning with their broader financial goals. Our team can help you evaluate Roth conversion opportunities, QCD strategies, and timing of distributions to minimize your lifetime tax burden. Visit https://novataxservices.com/ to schedule a consultation. Resources: IRS RMD FAQs IRS Publication 590-B IRS QCD Information
Which Form Does Your 501(c)(4) File? As a 501(c)(4) social welfare organization, your annual IRS filing requirement depends on your gross receipts. For 2025, if your gross receipts are normally $50,000 or less, you may be eligible to file **Form 990-N (e-Postcard)**. If your gross receipts are between $50,000 and $200,000, and total assets are under $500,000, you may file Form 990-EZ. Organizations with higher revenues file the full Form 990. Given your 2024 gross revenues of $350,000, you likely need to file **Form 990** (or Form 990-EZ if your assets are under $500,000 and you meet other criteria). For 2025, since revenues were minimal, you may qualify for the e-Postcard or 990-EZ depending on your total assets. Key Filing Deadlines The filing deadline for Form 990 is the 15th day of the 5th month after your fiscal year ends. For calendar-year organizations, this is May 15. A six-month extension is available by filing Form 8868. Missing the deadline can result in penalties, and failing to file for three consecutive years will result in automatic revocation of your tax-exempt status. Virginia and DC State Filing Requirements Virginia: 501(c)(4) organizations that solicit charitable contributions in Virginia must register with the Virginia Department of Agriculture and Consumer Services (VDACS). The registration must be renewed annually within 5.5 months after the end of the fiscal year. However, organizations raising less than $5,000 annually may be exempt. Washington DC: For DC tax-exempt status, organizations must file Form FR-164 online at MyTax.DC.Gov. It’s important to note that IRS 501(c)(4) recognition does not automatically grant DC tax-exempt status. Additionally, if your organization has unrelated business income subject to tax under IRC Section 511, you must pay DC franchise taxes on that income. How Nova Tax & Accounting Can Help At Nova Tax & Accounting Services, we specialize in Form 990 preparation for tax-exempt organizations, including 501(c)(4) social welfare organizations. Our team ensures accurate, timely filings that reflect your mission and maintain compliance with IRS requirements. We also assist with state registration and compliance. Visit https://novataxservices.com/ to learn more. External Links: IRS Form 990 Series IRS Exempt Organizations