BACK

Your Business Credit

Accepting credit cards won’t affect nonprofit’s tax status

Summary

Getting a credit card reader to accept donations won’t impact the personal finances of the person who opened the organization’s business account

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

 

QuestionDear Your Business Credit,
We have a nonprofit organization. However, the bank opened the account as a business account. We are looking into getting a credit card reader for our fundraisers. Will this device affect the authorized user on the business account’s financial aid or our personal tax return? — Nancy

 

AnswerDear Nancy,
Adding a credit card reader should not affect the finances of the person who opened the business account. If you are maintaining your books properly, the finances of the nonprofit will be separated from the personal finances of any individuals who work for it.

No matter how you accept funds from donors — whether by check or by credit card — or how much money flows through your business account, your method of collecting donations has no connection to anyone’s personal tax returns. Nonprofits generally must file their own annual return, according to the Internal Revenue Service. (There are some exceptions, which the IRS lists on its website.) Meanwhile, the individual employees of the nonprofit should file their own tax returns.

There is one way that the presence of the reader could affect the finances of the authorized user on the bank account, but it is very roundabout. If the nonprofit generates extra funds as a result of accepting credit card payments and decides to give this employee a raise, that could affect his or her tax situation and financial aid. But this would simply be because the individual was earning more money, not because a credit card reader was used.

It sounds to me as if you may have a fairly new nonprofit and would benefit from getting some advice on the financial side of running one. If you don’t have a good accountant, I’d recommend asking other small nonprofits in your area whom they use.

I realize nonprofits are often on a tight budget, but making sure a qualified accountant sets up your books properly, does your taxes and addresses your financial questions would be a very good investment. Many nonprofits run into financial problems because they have improperly handled their finances. Even an honest mistake can lead to serious problems with the IRS.

You might also find it helpful to take a look at the National Council of Nonprofits’ guide to financial management, which answers common questions on the subject. The guide links to the Nonprofit Financial Management Self-Assessment Tool, developed by the Nonprofit Association of Oregon. The tool can help you evaluate your organization’s financial management policies and pinpoint any areas where you need help.

As for the credit card reader, I am assuming you are considering either using a service such as Square that does not require a merchant account or getting a [%Link?type=glossary&id=514&text=”merchant account”%] to process the donors’ cards. Make sure you shop around carefully for an account that meets your needs or you could end up overpaying.

For some tips on this, see “Is it time to negotiate a new merchant account?

Fees from merchant accounts can add up, and any savings you find in processing your donors’ credit cards will be money you can devote to your charitable cause.

See related:Is the cardholder for nonprofit personally liable?, No 2-in-1 card for tax-exempt organizations, Church should limit users of its credit card

What’s up next?

In Your Business Credit

Get authorization for customer’s card before delivering goods

If you don’t take time to get a customer’s credit card purchase authorized before you deliver their purchase, you may have little recourse

Published: August 10, 2015

See more stories
Credit Card Rate Report Updated: June 19th, 2019
Business
15.61%
Airline
17.54%
Cash Back
17.68%
Reward
17.57%
Student
17.79%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.