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

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

Author: Jess Birken, MNM, JD April 16, 2026 Duration: 16:12

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

Connect with Us

Listen & Engage

Stay Connected


Ever find yourself wishing for a direct line to seasoned nonprofit leaders, a chance to unpack the real challenges that don’t make it into the glossy annual reports? Charity Therapy is that conversation. With host Jess Birken, who brings her background as a lawyer and a Master of Nonprofit Management to the table, each session feels like pulling up a chair with a trusted advisor. The discussions move beyond theory, tackling the granular details of operations that leaders actually face-whether it’s navigating a tricky IRS compliance question, rebuilding a fundraising strategy from the ground up, or managing the complex interpersonal dynamics that define any mission-driven team. This podcast digs into the operational heart of the sector, offering pragmatic insights you can apply directly to your own work. It’s a resource built on the understanding that running a nonprofit is a continuous practice of problem-solving, and Jess guides these explorations with clarity and a deep respect for the work. Tune in for honest dialogue that treats the daily grind of management as the serious and nuanced craft that it is.
Author: Language: English Episodes: 100

Charity Therapy
Podcast Episodes
Welcome to Charity Therapy! [not-audio_url] [/not-audio_url]

Duration: 4:01
What if you could hang out with experienced nonprofit professionals and ask them your burning questions about the day-to-day life of nonprofits? What if you could take their wisdom and bring it back to your organization,…
091: My Life the Musical [not-audio_url] [/not-audio_url]

Duration: 23:21
Hey there! We are back again, and this time we're delving into the nitty-gritty of growing a small team in the nonprofit sector. We've been through the ups and downs of growing our own team at Birken Law Office, and we'r…
090: The Wisdom of a 14-Year-Old [not-audio_url] [/not-audio_url]

Duration: 20:25
It's me again--ready to challenge what you think you know about the nonprofit sector. In this episode, I invite my guest - my 14-year-old - Max, to take a deep dive into the world of nonprofit boards. We're pulling back…
089: Midwestern Shame Spirals [not-audio_url] [/not-audio_url]

Duration: 17:54
In this episode of Charity Therapy, Meghan and I dive into the often-misunderstood world of conflicts of interest in nonprofits. What is a conflict, really? Is it a terrible, horrible, egregious situation to be avoided a…
Hitting the Hail on the Ned [not-audio_url] [/not-audio_url]

Duration: 15:54
When you think about nonprofits, lots of different things come to mind - missions and visions, fundraising, hard-working staff, and strong communities. But do you know what most folks don't think of? Efficiency. Today, M…
Money, Money, Money [not-audio_url] [/not-audio_url]

Duration: 19:35
In this episode of Charity Therapy, Meghan and I tackle another fundraising question - this time about dealing with difficult donors. This episode is a prime example of why it's SO important to stay focused on your organ…
Don't Sue Each Other! [not-audio_url] [/not-audio_url]

Duration: 21:41
Everyone wants to be an insider, right?! Well for nonprofits, that "insider" label can make things a little more complicated. Conflicts of interest have entered the chat! Can board members be hired to be the org's Execut…
One Giant Blooper [not-audio_url] [/not-audio_url]

Duration: 17:49
Join us in the restricted section for the episode – the restricted gifts section, that is! Today, Jess and Meghan break down what a restricted gift is and what exactly it means for your financials to accept one. What hap…
Fighting to the Death for Some PTO [not-audio_url] [/not-audio_url]

Duration: 21:18
Organizational culture is what gets created when we're busy doing EVERYTHING else. So, what do your fundraising practices say about your culture? We pulled this episode from the backlist because it deserves another momen…
Magic Wands & Shiny New Toys [not-audio_url] [/not-audio_url]

Duration: 20:21
Talking about fundraising can be overwhelming and FULL of jargon – but not when Patrick Kirby does it! Today we're joined by Patrick of Do Good Better Consulting to answer your nonprofit fundraising questions. How do we…