Tax Tips for Nonprofit Organizations

Nonprofit organizations have no shortage of challenges when it comes to annual taxes and reporting requirements. Unfortunately, keeping up with tax and reporting obligations can be quite burdensome given the ever-changing regulatory environment in the not-for-profit sector. On top of that, failure to play by the rules can result in costly penalties, including losing your tax-exempt status.

Needless to say, it’s important that you cover all of your bases in order to get the most out of your tax-exempt status and keep it intact. That’s why we’ve put together the following checklist with a few handy not-for-profit tax tips!

File the Correct Form 990

If your nonprofit has been granted tax-exempt status, it won’t pay federal taxes. But that doesn’t eliminate the requirement of an annual tax return to the IRS.

Each year, nonprofits must file an informational return called Form 990. This form includes information about your nonprofit’s mission, operations, governance, and finances. Not only do government agencies use the form to prevent organizations from abusing their tax-exempt status, but it’s also available for inspection by the general public.

There are several versions of IRS Form 990. The form you file depends on your organization’s size and financial activity.

• Nonprofits with gross receipts of $50k or less file Form 990-N.
• Nonprofits with gross receipts of less than $200k, or total assets of less than $500k file Form 990-EZ or 990.
• Nonprofits with gross receipts of $200k or more, or total assets of $500k or more file Form 990.
• Private foundations (regardless of financial status) file Form 990-PF.

File Form 990 on Time

Organizations that don’t file timely annual returns are subject to penalties. Furthermore, failure to file for three consecutive years will result in automatic revocation of your organization’s tax-exempt status.

Given the steep consequences for not filing, you’ll want to be vigilant about submitting your Form 990 to the IRS on time.

In general, the deadlines to submit your Form 990 will coincide with your organization’s tax year-end. If you suspect you might not be able to file on time, you can file Form 8868 to request an automatic six-month extension.

Don’t Forget About Additional Filings for Unrelated Business Income

Some nonprofit organizations generate income through activities that are unrelated to their organization’s primary not-for-profit mission. If your organization’s unrelated business activities produce over $1,000 in gross income, you’ll need to file an unrelated business income tax return.

Tax-exempt organizations use Form 990-T for a variety of purposes, but the most common reason is to report unrelated business income. It’s also worth noting that organizations with business income taxes in excess of $500 are typically required to pay an estimated tax on the amount.

As a general rule, the IRS requires that the Form 990-T is submitted at the same time as your Form 990. Fortunately, you can extend both deadlines by filing Form 8868.

Employment Taxes

Employment and payroll-related tax compliance are also hot-ticket items for nonprofit organizations. According to the IRS’s Exempt Organizations division, nonprofit organizations’ employment tax issues often stem from unreported compensation and tips, as well as worker reclassifications and failure to comply with FICA, FUTA, and back-up withholding requirements. Employment tax reporting can be tricky, so make sure you double check that your organization’s practices are compliant.

Don’t Forget About Tax Compliance When Fundraising

These days, it seems like there are countless creative ways to raise money for your not-for-profit organization — crowdfunding, social impact investors, commercial partnerships, etc. Technology may have outpaced current tax laws for the moment, but that doesn’t mean the IRS isn’t expecting you to properly account for any money you raise.

You should document any donation of $250 or more in writing. This may seem tedious, but it’s good practice. In fact, you should send a written acknowledgment (i.e., receipt) to each donor in the form of a thank you letter.

Each acknowledgment should include the following information:

• Your organization’s name.
• The amount of the donation.
• If a non-cash contribution, a description (but not the value) of that contribution.
• The date on which it was received.
• Whether the donor received any goods or services in exchange for their contribution.

Conclusion

If you’re like most nonprofit founders, you’ve learned to be a jack of all trades. While that type of agility is essential to getting a nonprofit up and running, that doesn’t necessarily mean you need to be involved in every aspect of your organization.

Odds are, you aren’t a tax expert.

If that’s the case, don’t be afraid to seek professional help from a tax expert specializing in nonprofits. Rivero, Gordimer & Company is a CPA Firm in Tampa, FL that has a substantial amount of experience providing not-for-profits with tax assistance. We were also recently named Small Business of the Year by the Greater Tampa Chamber of Commerce for our excellent service for local businesses and nonprofit organizations.