162: No, Not the Tomatoes! | Are Nonprofit Startup Costs Tax-Deductible Donations for the Founder?

You scraped together your own money to start a brand-new nonprofit. You're out the money, but can you at least take a tax deduction?

Meghan and I are back with a question from a new nonprofit founder who wants to know if the startup cash they put in before getting their 501c3 status counts as a tax-deductible donation. It's one of the most common questions we hear from new founders, and the answer involves a pretty handy IRS rule most people don't know about.

Real Listener Question:

"In June 2025, two friends and I created a housing placement nonprofit and each put our own money in to get it started. We earned our 501c3 status that September. Does that startup cash count as a tax-deductible donation even though it happened before our status was official?"

Meghan and I break down the IRS backdating rule, the chicken-and-egg problem of nonprofit startup costs, and what founders need to know before they file their taxes.

What You'll Learn:

• Why starting a nonprofit costs more than most founders expect
• The IRS backdating rule and how it protects early donors and founders
• What the 27-month window means for your tax-exempt status
• How founders can get reimbursed for the startup costs
• Why you can't take a deduction AND get reimbursed later

Bottom line: Nonprofits are businesses, and businesses have startup costs. Know your options before you file, and don't double dip.

Resources from this Episode

• Watch the C.H.U.D. trailer: https://youtu.be/iNq2yPGhv1w?si=-BIOh_iP-WCv_L0B
• Previous Episode: Why Recording In-Kind Donations Matters For Your Nonprofit: https://birkenlaw.com/charity-therapy-podcast/ct161-recording-inkind-donations
• Episode Transcript: https://birkenlaw.com/wp-content/uploads/2026/03/CT162_Transcript.pdf

Connect with Us

• Jess Birken: https://www.linkedin.com/in/jessbirken/
• Meghan Heitkamp: https://www.linkedin.com/in/meghan-heitkamp-829254115/

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