Tag Archive for UBTI

Unrelated Business Taxable Income For An IRA

In a previous article, we discussed the concept of Unrelated Business Taxable Income (UBTI) as it relates to non-profit organizations. If you have a self-directed IRA, you may be surprised to know that UBTI may also apply to your IRA. An IRA is a tax-exempt entity, under IRS rules. Note that the IRA itself is the tax exempt entity and the tax would be paid by the IRA, not the owner of the IRA.

The basic rules for UBTI in an IRA are pretty much the same as for any non-profit organization, but there are a couple of issues that may be encountered more commonly with an IRA. If a non-profit entity has UBTI, it will be subject to tax on that income at the applicable corporate rates. The purpose of this is to level the playing field for for-profit entities that must pay tax on their income. Read more

Unrelated Business Taxable Income

Non-profit organizations in the United States do not pay income tax on their “income.” However, when a non-profit ventures into certain business activities, it will owe income tax on this income, termed “unrelated business taxable income (UBTI).” This is only fair, as the non-profit is now competing with profit-making organizations that must pay tax on its income. UBTI levels the playing field.

What is Unrelated Business Taxable Income?

The IRS defines unrelated business taxable income as “gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business.” Let’s unpack this definition and see how it applies in particular cases. Read more

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