No one enjoys filing taxes, but it can be especially problematic for nonprofits. Many nonprofits focus on their cause so much that they neglect proper organization. As a result, they deal with disorganized records and systems, and a lack of clarity around tax issues. Necessary tax forms like the Form 1024 and Form 990 are often lost amidst the daily routine.
However, although many nonprofits are tax-exempt, nonprofits like 501(c)(3) organizations still need to keep accurate and detailed records of their activities to maintain their tax-exempt status. In this post, we’ll provide 5 tips to help you successfully manage your nonprofit organization, whether or not you’re required to file taxes.
1. File Form 990 consistently and accurately
Filing the IRS Form 990 is a significant part of maintaining your organization’s compliance. Often, many nonprofits fail to complete their Form 990 correctly or don’t understand when to file it. Since the 990 Form comes in different types, including Form 990, Form 990-EZ, Form 990-PF, and Form 990-N, it’s crucial to know which form your organization must file with the IRS.
What is Form 990?
Form 990 is filed by nonprofits to inform the IRS and general public about aspects of the nonprofit’s mission, program, and financial health. While not all nonprofit organizations are required to file the Form 990, those who are required must file any of the following form types, including Form 990, Form 990-EZ, Form 990-PF, and Form 990-N.
Which type of Form 990 should my nonprofit file?
The type of Form 990 your organization must file is dependent on your organization’s type, filing year, and gross receipts:
- Organizations with gross receipts of over $50,000 should file Form 990 (Form 990-EZ)
- Nonprofits with less than $50,000 in gross receipts should file Form 990-N
- Private foundations must file Form 990-PF
Please note that, if your organization is a faith-based organization, subsidiary of a nonprofit, government corporation, or state institution, it may not be required to file a Form 990. For more information on which organizations aren’t required to file Form 990, read the IRS list on their website.
When should I file Form 990?
You must file your Form 990 by the 15th day of the 5th month following the end of your fiscal year. For example, if your fiscal year ends on December 31st, you must file the appropriate Form 990 by May 15th.
2. Ensure that volunteers understand deductible expenses
Although volunteers are usually more than happy to contribute their time to support your cause, they may also want to deduct the expenses that they incur while helping your organization. It’s essential to make sure that they are educated about appropriate deductible expenses, especially since this may also incentivize them to help your organization more.
Transportation & travel expenses
As volunteers travel to and from your nonprofit, make sure that they’re aware that expenses like oil changes and gas are legitimate tax deductions. Additionally, other travel-related expenses like food and hotel costs are able to be deducted when they complete their taxes.
Similar to travel expenses, volunteers can deduct any costs and expenses that they incur while helping your nonprofit, like supplies, uniforms, or phone usage.
3. Organize your organization’s finances and records
Accurately documenting your nonprofit’s activities and keeping those documents organized can be a frustrating headache. However, being organized is an essential characteristic of successful organizations and is critical to maintaining your organization’s compliance. There are four main categories in which your organization must maintain proper documentation and record-keeping practices:
The accounting and financial activities of a nonprofit differ from those of a for-profit company. Tax payments and financial statements are handled differently, yet it can be difficult for nonprofits to organize their finances properly.
Here are three tips for organizing your organization’s finances:
- Choose an accounting method
- Know your tax responsibilities
- Understand your financial statements
Records & Documents
The amount of paperwork that comes with running a nonprofit can be overwhelming without proper organization. Whether you store your documents in a file cabinet or on a computer, keeping great records is essential to running your nonprofit well. If you’d like more information, Nonprofit Ally has a great guide on organizing your documents and paperwork.
4. Stay In Compliance
Because nonprofits are exempt from federal and state taxes and have access to funding from the public, they are held to strict standards by the IRS and other government institutions. It’s essential to stay in compliance with these standards to keep your status as a 501(c)(3) organization and avoid penalties.
Here are a few things that you need to do as a nonprofit organization to avoid noncompliance penalties:
- Ensure your tax-exempt status is current
- Review your state’s nonprofit requirements and ensure you’re registered
- Maintain your tax exemption status within your state
5. Include Crowdfunded Amounts In Your Donations
The advancement of technology has empowered nonprofits to collect donations through crowdfunding. Crowdfunding, for the unfamiliar, involves raising funds online by asking people on platforms like Kickstarter to contribute to your cause or organization.
While crowdfunding may be a relatively new trend, donation laws still apply to funds received through this channel. While crowdfunding has temporarily outpaced the regulations and standards for donations, treat them like traditional donations, noting the donation amount and any accompanying donations.
Whether your organization is established or just starting, organizing your records and maintaining compliance are vital to your success. While blogs (like this one) and other resources can be helpful, your circumstances may vary and require the expertise of a tax professional or accountant. Contact us today and we’ll help you organize your organization’s accounting and bookkeeping.