Nonprofit Tax Quiz

Everyone talks about the weather, but how many of us actually know what a lenticular cloud is or what the dew point means? In the nonprofit sector we throw around tax opinions, but here's a chance to learn something (uh oh). We loved working with Kim Klein of "Talking About Taxes" on this fun quiz.

We advise you to take this 17-question quiz with your friends or co-workers before looking at the answer sheet. (Hint: it's easiest if you print out the Quiz.) At the end of this article is a link to a print-friendly pdf of the quiz, the answer sheet, and the scoring guide.

1. If you give a nonprofit 501(c)(3) $10,000, how much less will you pay in federal taxes (assuming you itemize and are in the highest tax bracket)?

a. $10,000
b. $3,500
c. $1,500
d. $10,000, but only if you get a receipt within 60 days of the donation

2. In a group of ten people, seven of them filed the short tax form, and three filed the long form. All ten of them gave to a nonprofit. How many of them will reduce their taxes as a result of their donations?

a. Five. The other five gave their money to churches or religious institutions, and giving to religion is not deductible because of separation of church and state.

b. All ten -- that’s only fair.

c. Only the group of three. The other 7 are part of the 70% of Americans who file a short form, so they receive no tax benefit for their giving.

d. Eleven of them. One is filing two tax returns under different names.

3. Which of the following paid the least in U.S. taxes for 2010?

a. You
b. Sierra Club
c. General Electric (net profit $14.2 billion)
d. Willie Nelson

4. If you die and leave your son an estate of $3 million, how much in estate taxes (also called inheritance taxes) will be owed on the $3 million in income he is given?

a. $0
b. 15% which calculates to $450,000
c. 35% which calculates to $1.05 million
d. 15% on real estate inherited and 35% on non-real estate inheritance assets

5. Who said the following: "The estate tax -- our nation's only levy on accumulated wealth -- is the fairest and most important tax we have"?

a. Karl Marx
b. Theodore Roosevelt
c. Bill Gates, Sr.
d. Pope Paul VI
e. Thomas Jefferson

6. A "progressive tax structure" means:

a. It is supported by "progressive" people.

b. It is part of Obamacare.

c. People with higher incomes pay a higher percentage in taxes than people with lower incomes.

d. Taxes increase with inflation.

7. In the United States, if you live in a household with a total gross household income of $250,000 or more, what percentage of U.S. households have less income than yours?

a) 98%
b) 70%
c) 40%
d) 32%

8. If Michael, an attorney whose billing rate is $300 per hour, donates 3 hours of legal counseling to a nonprofit, how much can he deduct from his taxable income?

a. $0

b. 15% = $126 ($300 * 3 = 900, then 14% of 900 is $126)

c. $900 if he itemizes

d. Three hours at the average attorney billing rate in his state

9. Which of the following is legally a restriction on 501(c)(3) nonprofits:

a. Nonprofit staff cannot donate blood.
b. Nonprofits cannot borrow money, except from board members and staff.
c. Nonprofit board meetings must be open to the public.
d. Nonprofits cannot divvy up the surplus at year-end and distribute it to staff.
e. b and c

10. If you buy $20 worth of raffle tickets (for a new car) from a nonprofit as a fundraiser, you can:

a. Deduct $20 from your taxable income.

b. Deduct between 15% and 35% of the $20 from your taxable income depending on your tax bracket.

c. You can deduct only if the ticket says, “Donation requested” and indicates how you can get the tickets for free.

d. $20, but only if you win the car.

11. True/False: Thank-you notes to donors are required by law.

a. True

b. False, but you must send a receipt (acknowledgment letter) to a donor for any donation of $75 or more.

c. False, but you must send a receipt (acknowledgment letter) to a donor for any donation of $250 or more

d. Thank-you notes are only required for donors who are intending to list the donation on their tax returns.

12. To be officially poor according to the federal government, a family of four can have a total annual income of no higher than:

a. $22,350
b. $31,700
c. $42,000
d. the salary of the governor of Wyoming.

13. Median household (not individual) income: you live in a household that makes more money per year than 50% of American households. Your total household income is:

a. $31,000
b. $48,000
c. $94,000
d. More than Scrooge McDuck makes in a year.

14. If you paid $10,000 last year in federal income taxes, how many of your tax dollars went to conservation and the environment?

a. $100
b. $120
c. $370
d) $610

15. If you paid $10,000 last year in federal income taxes, how many of your tax dollars went to military and defense?

a) $1,000
b) $2,000
c) $5,000
d) $6,100

16. Sally Stockowner received $50,000 in income last year as profit from selling stock (that she owned for more than a year). Tanya Teacher is a school teacher with a salary of $50,000. Assuming they have no other income and they both take the standard deduction, which of them paid more in federal taxes?

a. Sally and Tanya both paid the same.
b. Sally Stockowner paid more.
c. Tanya Teacher paid more.
d. I don't like word problems.

17. If you pay at the highest individual rate for federal income tax in your country, in which country would you pay the highest amount in taxes?

a. Angola
b. Sweden
c. United States
d. Cuba

Answer sheet and scoring guide

Congratulations! You're done! Now: to download the free answer sheet and scoring guide (and the quiz without the answers to make it easy for you to photocopy for a group), please click HERE.

Our thanks to tax accountant Hank Levy, CPA, and to Paul Rosenstiel for assistance with this article.

Kim Klein is a legendary fundraising trainer, writer, and advocate for grassroots organizations. Among her five books is the classic Fundraising for Social Change, a must for nonprofit bookshelves. She is part of the "Talking About Taxes" work of the Building Movement Project, and she writes a blog on their site; click here to go there.

Jan Masaoka is editor of Blue Avocado.

See also in Blue Avocado:

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Comments

I think the answer to 12 is (a) - federal poverty level for a family of four is $22,350. If you can believe that. At least that's what your link to the guidelines says.

You're right and several other people emailed us. It's fixed now, and thank you for taking the time to write. [Insert image here of person striking palm to forehead] I don't know how we messed that one up so badly! Jan

the answers to 12 and 14 both need checking. they're NOT fixed.

"or you could be General Electric." LOL! great article, Blue Avocado. Thanks!

Love it. Hilarious...sad, and true.

Thanks for the fun and informative quiz! Regarding #11, although it is certainly best practice for a nonprofit to acknowledge all donations if possible and to provide donors with what they must have to substantiate their tax deduction, there is no legal requirement that the nonprofit acknowledge a donation, except in the case of a quid pro quo donation where separate rules apply.

The practical value of knowing this is that nonprofits don’t have to sweat any deadline, such as Jan. 31, to get donor confirmations out. The donor has until the due date of his or her tax return to obtain any required confirmation from the nonprofit.
The answer to question 11 references IRS Pub. 1771, which includes in relevant part:

“… it is the donor’s responsibility to obtain a written acknowledgment for a contribution, and an organization that does not acknowledge a contribution incurs no penalty. Nonprofits can assist a donor by providing a timely, written statement containing the following information: …”

I was going to mention the same point! Odd that it is legally required on the donor end, but not on the nonprofit side.

The answer to #1 is misleading. It does not take into account that the AMT reduces the value of a charitable donation to many taxpayers in the highest bracket and so in reality for every $1 donated the tax savings is much less than $0.35.

Excellent, but I would like to see a reference on 9. My understanding is that a nonprofit cannot divvy up the surplus at year end to BOARD, but I know of absolutely no reason we can't share (at least some of) any surplus with staff as part of a bonus program. In fact, I did exactly that in one nonprofit I ran. We found it a very effective motivational tool to keep folks focused on the bottom line... plus it means I have a personal interest in making sure I don't go to prison! :)

Can I ask a new question that wasn't on the quiz? How much tax deduction can you take when there is an exchange of goods and services? Say a dinner, where the value was $25 and you purchased $100 seat? Or a charity bike ride, where you paid $25 for registration fee and received a shirt and goody bag? I see differing approaches by nonprofits to this one. Thanks

Love this, but I would challenge the answer to number 15. According to the American Friends Service Committee (www.oneminuteforpeace.org,) we spend about 60% of every income tax dollar on the military. This includes regular defense spending, but also current wars (some of these costs are "off-budget"),veterans affairs, and interest payments on the portion of our debt for military activities past and present.

To be clear, this total is not 60% of the federal budget -- much of which pays for entitlement programs like Social Security -- but rather the discretionary spending paid for through income taxes.

Thanks Kim and Jan...

What happened to the answer sheet?

We took it down for five minutes to correct a typo. Yikes. It's back up again. I'm sorry! Jan

Thanks

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