A foundation excise tax is a type of tax imposed on the net investment income of certain private foundations. These taxes are levied by the Internal Revenue Service (IRS) and are designed to discourage foundations from accumulating assets for too long. The tax rate for foundation excise taxes is currently two percent.
The foundation excise tax applies to certain private foundations that are classified as “non-operating foundations” under the Internal Revenue Code. These foundations must meet certain criteria in order to be classified as non-operating, including having a minimum net investment income of $1,000 per year. You can checkout firms like CPA KPA to find the best counselor for filling returns.
Net investment income includes any income generated from investments such as stocks, bonds, mutual funds, and other securities. It also includes income generated from dividends, interest, and capital gains.
In order to calculate the foundation excise tax, the net investment income must first be determined. This amount is then multiplied by the two percent tax rate to determine the amount of tax due. For example, if a non-operating foundation had a net investment income of $1,000 for the year, the foundation excise tax would be $20.
The foundation excise tax is reported on Form 990-PF, which is the private foundation’s annual information return. The form must be filed with the IRS by the 15th day of the fifth month after the end of the foundation’s tax year.
By imposing the tax, the IRS is encouraging foundations to invest their income and not simply accumulate assets for too long. It is important for non-operating foundations to understand their tax obligations and ensure that the foundation excise tax is paid on time.