How can a club create tax reserves?
January 1, 2023 | 50,00 EUR | answered by Dora Krause
Dear tax advisor,
I am Elvira Höhne and a board member of a non-profit organization. In recent years, we have successfully raised donations and funding, which has increased our organization's assets. Now we are wondering how we can create tax reserves to be prepared for future investments and potential financial constraints.
Currently, we have not yet created any tax reserves and are unsure if and how this is possible for a non-profit organization. We want to ensure that we comply with legal requirements and avoid any tax issues. At the same time, we also want to financially plan for the future.
Our main question is: How can we, as an organization, create tax reserves and what tax aspects should we consider? Are there specific legal regulations for non-profit organizations regarding reserve formation? What options do we have to build financial reserves without jeopardizing our non-profit status?
We would greatly appreciate your support and advice on this matter, as the board members do not have expertise in tax law. We want to ensure that we find the best possible solution for our organization and can operate successfully in the long term.
Thank you in advance for your help.
Sincerely,
Elvira Höhne
Dear Mrs. Höhne,
Thank you for your inquiry regarding the formation of tax reserves for your non-profit organization. It is commendable that you are actively considering the financial future of your organization and wish to plan ahead. As a tax advisor specializing in association taxation and non-profit status, I am happy to assist you and provide you with some important information on forming tax reserves for non-profit organizations.
In general, non-profit organizations are also allowed to form tax reserves. However, there are some legal requirements and specific considerations to be aware of in order to not jeopardize the non-profit status. According to § 55 para. 1 no. 1 of the Tax Code (AO), non-profit organizations may only form reserves to the extent necessary to achieve the tax-exempt purpose. This means that the formation of reserves must directly serve the statutory purpose of the organization.
It is important that the formation of tax reserves is done as part of a sustainable financial planning and is transparently documented. The reserves should be earmarked for a specific purpose and be in proportion to the financial needs of the organization. An excessive accumulation of reserves may lead the tax office to question the non-profit status of the organization.
As board members, you are obligated to regularly review and document the formation of reserves. It is advisable to make a decision by the board for this purpose and disclose the reserves in the annual financial audit. Additionally, you should ensure that the reserves are actually used for the tax-exempt purpose and not misappropriated.
There are various ways in which non-profit organizations can form tax reserves, such as creating general reserves for future investments or establishing specific reserves for certain projects or initiatives. It is recommended to seek advice from an experienced tax advisor to consider the tax aspects and avoid potential risks.
Overall, it is important that the formation of tax reserves for your organization is carefully planned and implemented in order to be financially secure in the long term. I am happy to assist you with any further questions and support you in finding the best solution for your organization.
Sincerely,
Dora Krause
Tax Advisor
