What are “directly connected” expenses?

Question: What are “directly connected” expenses? Answer: Deductions incurred solely because of the unrelated business are known as directly connected expenses. These are expenses that wouldn’t be incurred if the unrelated business didn’t exist.  For example, the costs of maintaining a building that’s used solely for a gift shop (the unrelated business) could be a directly… [Read More]

When is Unrelated Business Income Taxable?

If your nonprofit engages in inactivity unrelated to its exempt purpose, you may have Unrelated Business Income that is taxable. Unrelated Business Income is the income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that… [Read More]

What are “dual use” expenses?

Question: What are “dual use” expenses? Answer: If an expense is incurred both to carry on exempt functions of your nonprofit and to conduct an unrelated business, then you have what is known as a dual use expense. For example, let’s assume your nonprofit’s president is paid $80,000 per year. If he devotes 90% of his… [Read More]