Nonprofits may be tax-free, but they are not free from tax filing. Taxes are a necessary part of running a nonprofit, but they can be confusing and time-consuming. Here are five tips to help you prepare your taxes:
1. Keep good records
Organizing your financial records will make preparing your taxes much easier. Keep track of all income and expenses, including donations, grants, and funding sources. Having everything in one place will make it easier to complete your tax return and make sure you don’t miss any deductions.
2. Know which forms to use
There are different tax forms for different types of nonprofits. Make sure you’re using the right form for your organization by checking with the IRS or your accountant. Check the IRS website to make sure you find the correct 990 form: E-file for Charities and Non-Profits | Internal Revenue Service.
3. Take advantage of deductions
Nonprofits are eligible for many different deductions, so make sure you take advantage of them. Common deductions include donations, office expenses, and salaries. Check with the IRS or your accountant to see what other deductions may be available to you.
4. Hire a professional
Preparing taxes can be complicated, so it may be worth hiring a professional to do it for you. An accountant or tax attorney can help you maximize your deductions and make sure you’re complying with all the rules and regulations. See below for a short list of nonprofit-focused tax preparation services.
5. Stay up to date on changes
The tax code is always changing, so it’s important to stay up to date on the latest changes that could affect your organization. The IRS website is a good resource for information on new laws and regulations
Nonprofit Tax Terms to Know
Form 990: A 990 is a form that nonprofits must file with the IRS each year. The form provides information about the organization’s finances, income, expenses, and more.
Deduction: A deduction is an expense that can be subtracted from your taxable income. Nonprofits can deduct many common expenses, such as donations, office expenses, and salaries.
Tax-exempt: Tax-exempt status allows a nonprofit to avoid paying taxes on most of its income. To qualify for tax-exempt status, a nonprofit must meet certain requirements set by the IRS.
Donor Disclosure: A charitable organization must provide a written disclosure statement to any donor of a quid pro quo contribution over $75.
501(c)(3) vs EIN Number: A 501(c)(3) is a tax-exempt designation given by the IRS to nonprofit organizations. To be eligible for this designation, nonprofits must meet certain requirements, such as having a charitable purpose. An EIN number is an identification number assigned to businesses by the IRS. Nonprofits must have an EIN number in order to file their taxes.
State Fundraising Compliance/Charitable Solicitation Registration: Fundraising compliance is your nonprofit’s adherence to the charitable solicitation laws that exist in about 45 states (state’s laws/requirements change frequently). In most of those states, nonprofits are generally required to register with the charity office of each state in which they solicit.
- 140: Crash Course in NGO State Fundraising Compliance – Whole Whale
- State Fundraising Registration Requirements – Labyrinth, Inc.
Nonprofit Overhead: Overhead is generally defined as a combination of “management,” “general,” and “fundraising” expenses. There are definitions found in the Instructions to the Form 990. Based on the 990, a nonprofit has three categories of costs: Management & General, Program, and Fundraising.
Nonprofit UBIT (Unrelated Business Income Tax): Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income at a 21% rate. For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption
List of Tax Preparation For Nonprofits
Nonprofit Tax Software
- File 990 – File 990 is nonprofit tax preparation software that imports relevant data about your nonprofit from the IRS database. You just need to know your nonprofit organization’s tax EIN.
- H&R Block – H&R Block has a tax preparation software for small business owners nonprofits can use too. They also can connect you with an accounting professional if you get stuck.
- Electronic Federal Tax Payment System – The EFTPS tax payment service is provided free by the U.S. Department of the Treasury. After you’ve enrolled and received your credentials, you can pay any tax due to the Internal Revenue Service (IRS) using this system.
- Aplos – Aplos is a nonprofit CRM with accounting tools allowing you to electronically prepare and file your IRS Form 990 for free.
- Express 990 – Express 990 supports Form 990, 990-EZ, 990-PF,990-N (e-postcard), and Extension Form 8868. They offer easy-to-use, web-based software to e-file your annual 990 returns.
Nonprofit Tax Prep Companies
- Jitasa has a team of experienced tax specialists who have filed taxes for over 3,849 nonprofits. They offer tax filing services for a simple, flat rate fee.
- Nonprofit Tax : Cherry Bekaert
- Tax Exempt & Nonprofit CPA | Aprio
- What We Do | Cogency Global Corporate Business Services
- Labyrinth, Inc.
- R&G Brenner provides nonprofit tax preparation experts with individualized services.