Nonprofit Action Items for Tax Season

As a nonprofit organization, you don’t have MUCH to worry about during tax season. 501(c)(3) organizations file a good amount of paperwork upon establishment, in order to ensure a tax-exempt status. However, even without the requirement of paying annual taxes, there are still tax forms for your nonprofit to file to maintain this tax-exempt status.

Even though nonprofit organizations have it easier than for-profit organizations or individuals during tax season, there are still some action items to stay on top of. Let’s take a look to make sure you’re prepared for this years (and future years) taxes.

1. Form 990

Your first action item is form 990, which breaks down your nonprofit’s revenue and expenditures into various categories. You also get the opportunity to explain how you are serving the community, the value you provide and why you deserve to keep you exempt status. Before you start filling out your Form 990, you need to know which version of this form is for you.

990 Postcard or 990-N

The Form 990-N is an electronic form with 8 questions. It’s very straightforward and on the simple side of tax forms (if that exists). To qualify for the 990 postcard, your nonprofit must normally have gross receipts of less that $50,000. Therefore, this form, is meant for only the smallest of the nonprofit organizations.

990-EZ

This for is a little longer than the 990-N, coming in at 4 pages. Organizations that qualify for the EZ form are those with gross receipts less than $200,000 or total assets that equal less than $500,000. So, if your organization is mid-sized, this could be the form for you.

Standard Form 990

This 12-page form is the longest of the 990 forms but still more simple to complete than annual taxes for an individual or a for-profit company. Nonprofits that have at least $200,00 in gross receipts or above $500,000 in total assets must file the Standard Form 990.

2. Analyze Your Statement of Functional Expenses

Tracking data is key to maintaining perspective on how your organization is running, as well as reporting this information to the IRS. Data is key to any successful strategy. If you want to file your Form 990 effectively and easily, you should be tracking your data throughout the year. More specifically, your nonprofit should be tracking your statement of functional expenses to make Form 990 filing smooth and simple. Think of a statement of functional expenses as a budget breakdown, outlining where your money goes by both function and nature.

Function: programming expenses, administration, and fundraising
Nature of that function: salaries, rent, supplies, depreciation, etc

3. Hire an Accountant to Help you File

IRS forms are challenging and often seems like they are purposely confusing. It’s common to miss a line or to fill out a form incorrectly. Having an expert on your side will ensure that your forms get filed and you don’t have to deal with the complications of any mistakes. For nonprofit organizations, we recommend that you work with accountants who specialize in nonprofit accounting (such as Harrington Group). Nonprofit accounting experts will have much experience working with Form 990s and will know exactly how to make your tax season easy and painless.

4. Have Effective Accounting Reports Available

This action item comes down to being organized. You want to have your financial information at your fingertips, being able to pull what you need at a moment’s notice. For each person, this may manifest in different systems ranging from a file cabinet to a digital organization system such as QuickBooks or Quicken. Digital systems are encouraged, and they not only take up less physical space, but they tend to be easier to maintain and to access.

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There are always more ways that you can make you tax season easier, but these are some minimum suggestions for maximum results. Really take this annual time to analyze your data and look towards the year ahead. Make sure you stay organized so that you can access your data quickly and painlessly. Hire a professional to make the process seamless and free of mistakes. Tax season can be daunting but you can do this and we are here to help!