Filing taxes for a nonprofit is probably not on anyone’s “bucket list.” When you’re busy running a charitable organization that is serving a need in your community, the last thing you’re looking forward to is tax time.
We get it! Tax returns can be stressful enough on their own. The added responsibility of accurately reporting the donations of your supporters and keeping up with all of your expenses can make them even more of a burden.
In this post, we’ll come alongside you and help make it easier. We believe that you deserve to be able to file your tax return quickly and efficiently so you can get back to doing good in your neighborhood!
Everything You Need to Know About Filing Taxes for a Nonprofit
A nonprofit can have many different legal definitions. Still, we all generally recognize them as entities in which none of the organization’s net earnings benefit any individuals or shareholders.
Cornell Law defines a nonprofit as “a group organized for purposes other than generating a profit and in which no part of the organization’s income is distributed to its members, directors, or officers.”
There are several types of “nonprofits.” They usually take on the form of a charitable organization, a church or other kind of religious organization, a private foundation (run by a single family or several donors), a political organization, or some other type of social club or business league.
Here are some examples of the most common ones as defined by the IRS in the Internal Revenue Code (IRC):
- 501(c)3 – Public Charities including churches & religious organizations,
- 501(c)4 – Social Welfare Organizations, Homeowners Associations, Volunteer Fire Departments
- 501(c)5 – Labor Unions
- 501(c)6 – Chambers of Commerce
- 501(k) – Child Care Organizations
People are often surprised to learn that there are actually 32 different types of nonprofits! (You can find the complete list in this article done by Forbes.com.)
Regardless of which kind of nonprofit you run, we can help you file your tax return in a timely manner. Here’s what you need to know.
How to File Nonprofit Taxes
The IRS requires that every nonprofit organization file what is known as an “information return” each year. It differs from a standard tax return in that it does not calculate taxes due or require any type of payment. It is simply a form that your nonprofit files in order to report what revenue your organization received and how those funds were used.
Additionally, nonprofits are required to describe their mission and account for how money was spent to accomplish their top 3 stated mission goals. They want to know about how your organization is governed and managed, what policies you have in place, and what compensation was provided to staff members as well.
There are 3 forms that the IRS uses to accomplish this (and various additional schedules depending on certain activities). Which forms you will need to use depends on how much money your nonprofit brought in and what you did with it.
- Form 990 – This is the nonprofit equivalent of Form 1040. It is the comprehensive reporting tool for all of your organization’s activity throughout the past year. Nonprofits with revenues exceeding $500,000 are automatically required to file this form, but some that make less may choose to use it as well.
- Form 990-EZ – This simplified version of Form 990 can be used by nonprofits reporting revenues of less than $200,000 and assets worth less than $500,000. (They may also use the regular 990 if they prefer.) Private foundations cannot use this form, however. (That one is coming up in a minute.) And the IRS only accepts electronic filing of it.
- Form 990-N – Small nonprofits (those with revenues less than $50,000) can file this form which is also known as the “e-postcard.” There are no paper versions, and it can only be filed electronically.
Not everyone can use 990-N. Private foundations, political organizations, U.S. government entities, Pre-1880 Armed Forces organizations, religious organizations, and tuition programs are among some of the groups that are not eligible to use 990-N. Check with your CPA if you aren’t sure about your status. - Form 990-PF – If you manage a private foundation, this is the form you will need to use. In it you will report all revenue, operating and administrative expenses, assets, and liabilities that your private foundation handled during that tax year.
Your CPA can help you fill out the appropriate forms and send them in. Be sure that your nonprofit’s board of governors has the opportunity to look over everything first, though.
Additionally, your CPA will need the following documents to make sure your return is complete:
- Articles of Incorporation
- Employer Identification Number (EIN)
- By-Laws of the Organization
- Minutes of Board Meetings
- Names, Addresses, & Resumes of Board Members
- Names and Addresses of Active Members
- Inventory of Assets
- Inventory of Liabilities
- Rent/Lease Agreements & Contracts
- Revenue and Expense Statements
- Written Reason for Formation & History of the Organization
- Organization Mission Statement (or Statement of Faith/Beliefs)
- Organization Activities, Operations, and Program Documentation
- Financial Support Documentation
- Fund Raising Program Descriptions
We get it! That’s a lot of paperwork. That’s why we’re more than happy to take the time to help you put all of that together. You don’t need the stress of all that documentation on top of trying to serve your community. Our tax pros know how to make it smooth and painless.
When To File Nonprofit Taxes
Nonprofit entities are required to file whichever Form 990 variant applies to them by the 15th day of the 5th month after your tax year ends (which is usually the same as your accounting year).
There are penalties for filing late. Also, if a nonprofit organization fails to file its returns for 3 consecutive years, it runs the risk of having its tax-exempt status revoked and being responsible for paying back-taxes on all of those years.
Treat your Nonprofit Tax Returns Like Marketing
Something to keep in mind about filing taxes for a nonprofit is that the information you submit will eventually be made available to the public. Anyone can use the IRS’s Tax Exempt Organization Search tool to see 990s for any nonprofit they wish.
We recommend that you and your CPA write your return with donors in mind. As people are deciding whether or not to support your cause, they will want to know that you can be trusted to use their money in a responsible and meaningful way. And your 990 can go a long way in accomplishing that.
We Make Filing Taxes For Nonprofits Easy
Knowing how to file nonprofit taxes doesn’t need to be stressful or complicated.
For over 4 decades, we have helped nonprofits of all kinds fulfill their filing obligations and provide peace of mind to potential donors by providing outstanding tax prep services. We have 6 locations across West Tennessee but are able to remotely come alongside you wherever you serve if that’s easier. Check us out and schedule a call today!
