Contrary to popular belief, starting a nonprofit organization does not mean you cannot make a profit. It means that the profit you do make must be reinvested in fulfilling your specific nonprofit mission. As long as you follow these guidelines you will pay little to no tax. However, the taxing authorities want to make sure that your operations stay consistent to this mission. How do they do this…? They Have you file taxes although you are not paying taxes!
The worst thing that a nonprofit organization can do is overlook their tax filing requirement. Not filing could lead to losing your tax exempt status, which would kinda defeat the purpose. This will also prevent you from applying for grants, and individuals that contribute monies to your organizations can no longer deduct them on their own personal tax return.
Here are a few tips for maintaining compliance:
- Be early about filing your taxes every year. Working with an accounting firm that specializes in nonprofits can help you stay up to date on deadlines and will help you avoid penalties. To maintain your federal tax exempt status nonprofits must file a form 990,990-EZ, or 990-N depending on the amount of cash you bring that year.
- Throughout the year, ensure that you are writing receipts for all donations that are made to your organization. If you are soliciting any contribution, you need to have a paper trail. This will matter a lot at the end of the year, so do whatever you can to make sure you are keeping the books.
- Designate a treasurer who will manage your financial side of your nonprofit, specifically in regards to contributions and taxes. Something that they will need to determine is the best way to record your financial data, there are several cloud based software out that can simplify this process. QuickBooks Online, Aplos Software, and Xero are some of the best.
These are just a few tips that you need to keep in mind if you are a nonprofit. If you do get in a bind it is best to act on it and have an open line of communication with the taxing authority. Don’t Panic, and definitely don’t hide!
It is important to note that we are not just talking about the IRS, we are talking about you state, county, city, taxes as well. Think state taxes, business license tax, property taxes, and sales tax. If you don’t already have your finger on what these organizations need from you, you are likely already in a RISKY position!
If you need it, we are here to help.