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5 Tax Tips for Nonprofits

Nonprofit organizations avoid most kinds of taxes that you can think of, so the most valuable tax tips for nonprofits actually revolve around maintaining their tax-exempt status.

Nonprofits dodge a fairly large list of taxes. They’re off the hook for federal, state and local income taxes. And they’re exempt from paying sales and property taxes. They’re not completely IRS-proof, however, as they pay Social Security and Medicare taxes for their employees like a typical business.

But to retain those tax privileges, nonprofits need to remain compliant with a host of IRS rules. Here, we’ll outline some of the most important tax tips for nonprofits.

#1: Forms Matter

The main form nonprofits must file every year to maintain their tax-exempt status is the 990 — or at least one of them. The IRS actually has four different forms that covers nonprofit organizations of different sizes:

  • Form 990: For nonprofits with gross receipts greater than or equal to $200,000, or total assets greater than or equal to $500,000.
  • Form 990EZ: Gross receipts of less than $200,000 and total assets of less than $500,000.
  • Form 990-N: Gross receipts of less than or equal to $50,000.
  • Form 990-PF: This is for private foundations with any level of gross receipts. The important differentiator is that their money doesn’t come from public sources, but instead private sources or an endowment.

Form 990s of any sort are due on the 15th day of the fifth month following the end of your organization’s taxable year. (The IRS-provided example: If you operate on a calendar year, Form 990 would be due May 15 of the following year.)

#2: Keep Accurate Records

This belongs among tax tips for any type of organization or individual, and it’s certainly important for nonprofits. In short, make sure accurate bookkeeping starts at the front lines and makes its way to the tippy top. Nonprofits should give written receipts for donations of any dollar amount. They should provide written acknowledgment for donations of $250 or more. They also should provide a written disclosure if a donor provides goods or services and is paid more than $75.

Higher up the chain, it’s important to maintain clean records of all of a nonprofit’s financial comings and goings — budgets, salaries, etc.

#3: Don’t Forget Unrelated Business Income

Another type of tax that some nonprofits have to pay is on unrelated business income. That is, a nonprofit must pay taxes if it receives $1,000 or more of gross income from a.) a trade or business that is b.) regularly carried on and c.) not substantially related to furthering the organization’s purpose.

Organizations with unrelated business income must fill out Form 990-T. Also, if a nonprofit expects tax on unrelated business income to exceed $500, it must pay estimated tax.

#4: Don’t Mess With Politics

“Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.”

That’s the guidance from the IRS as it pertains to political activity, though we’ll provide a little clearer guidance.

A nonprofit can’t engage in political campaign activity. Examples of that include making monetary contributions to a political campaign, or writing some sort of endorsement for a candidate on behalf of the nonprofit.

A nonprofit can, however, participate in voter education activities, as well as voter registration/get-out-the-vote efforts, as long as they’re conducted in a non-partisan way.

#5: Rely on the Pros

The most important financial goal for any nonprofit is achieving and maintaining compliance with financial and regulatory requirements. So why leave it to chance? McManamon & Co. has developed a custom suite of services that helps you do that — and so much more. Our nonprofit services can also help you optimize your nonprofit’s performance, mitigate risk and even reduce operating cost.

Keep your nonprofit on Uncle Sam’s good side. Call us at 440.892.8900 or contact us online today.

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