How To File Taxes for A Nonprofit

Although nonprofits usually have exemptions from paying taxes, they must still file tax returns each year. Nonprofits file certain forms, depending on the type of nonprofit and the amount of annual revenue. Nonprofit organizations that maintain high levels of organization can find ways to save money and minimize complications in the tax-filing process. With this information, you will understand how to file taxes for a nonprofit.

How Nonprofits Can Save Money on Tax Obligations

Nonprofit tax returns involve a clear and honest accounting of the organization’s gross receipts and expenses for the year. Although nonprofits do not have to pay federal taxes and may be exempt from other kinds of taxes, the organization must demonstrate proper asset management and compliance with local and federal tax laws. These tips can help you manage your nonprofit tax obligations.

1. Ensure Tax-Exempt Status

Nonprofits can only maintain a tax-exempt status through correct use of revenue. Organizations with a nonprofit classification include religious institutions, public safety organizations, charities, research organizations, and more. To preserve your tax-exempt status, you must prove that any revenue goes to other tax-exempt organizations, minus expenses.

2. Keep Accurate Records

To simplify the process of filing your nonprofit tax documents, you should aim to organize and maintain accurate records. The amount of detail that the IRS requires for nonprofit filing depends on annual revenue and type of nonprofit. Since you may need to provide exacting detail of all your expenses, you should ensure that you have those records at hand.

3. Optimize Deductions

Nonprofits can deduct certain expenses needed to run the organization when balancing revenue and costs. Common deductions include:

  • Staff compensation
  • Home or office expenses
  • Rental space
  • Licensing and training
  • Equipment maintenance and repair
  • Advertising
  • Financial losses

If you are unsure of the deductions you may qualify to take, you should consult a professional for detailed advice.

4. Utilize Tax Credits

In many cases, nonprofits are eligible for tax credits, as well. For example, if your nonprofit chooses to make certain clean energy upgrades to an office space, you may qualify to receive a credit for the expenses needed to complete the upgrades. Because nonprofits do not pay federal taxes, they can get the credit in the form of a direct pay reimbursement.

5. Consider Local Incentives

Many state and local governments offer additional incentives to nonprofits. Some states allow nonprofits to avoid paying sales tax, for example. If you qualify for these types of incentives and tax breaks, keep track of your records. Remember to file claims within the designated claim period, so you can minimize expenses.

6. Research Current Tax Laws

Tax laws change every year. Part of learning how to file nonprofit taxes includes staying current on tax laws, so you understand your responsibilities, deductions, credits, and other opportunities. Before you start preparing your taxes, confirm that you are looking at the latest documents for the appropriate tax year.

7. Manage Payroll Tasks

Although eligible organizations do not pay income taxes, nonprofit payroll must still include payroll taxes, including Social Security and Medicare deductions. Since employee compensation can represent a significant portion of your deductions, you should confirm that you have followed proper procedures. If you struggle to manage these tasks, consider arranging for payroll services for nonprofits.

8. Avoid Penalties

Failing to file taxes at the appropriate time can lead to penalties, including the possible loss of tax-exempt status in certain cases. Your nonprofit tax filing deadline depends on the tax calendar that your organization uses. Start preparation early, so that you have time to address issues before the filing deadline.

How to File Nonprofit Taxes

If you have all your files organized and ready for filing, you may find that the process takes less time than you expect. Plan to complete the following steps:

  • Confirm the type of nonprofit, which determines the forms you need to complete.
  • Choose the appropriate forms for your nonprofit, which often includes a variant of Form 990.
  • Collect financial records, including revenue and expenses.
  • Provide your nonprofit’s mission statement, along with other information about your organization’s progress and management throughout the year.
  • File tax documents by the appropriate deadline.

If you have questions or concerns about the information you must provide, you should consider hiring nonprofit tax help.

UST Can Help Your Nonprofit Prepare for Tax Season

To avoid complication and confusion around filing your nonprofit taxes, you can call on UST for expert assistance. We specialize in solutions for nonprofits, including payroll management, tax document organization, and more. We can help you understand your tax filing status and get ready for tax season, in addition to offer our services for unemployment for nonprofit organizationsContact us to learn more about our services or to request a free savings analysis.

SOURCES

https://labyrinthinc.com/how-to-prepare-a-nonprofit-tax-return/

https://www.councilofnonprofits.org/running-nonprofit/administration-and-financial-management/federal-filing-requirements-nonprofits

https://donorbox.org/nonprofit-blog/nonprofit-tax-returns

https://www.irs.gov/charities-non-profits/exempt-organization-annual-filing-requirements-overview

https://www.investopedia.com/ask/answers/08/nonprofit-tax.asp

https://crscpa.com/blog/how-to-make-filing-taxes-for-a-nonprofit-easy-everything-you-need-to-know/

https://donorbox.org/nonprofit-blog/17-ways-to-save-money-as-a-nonprofit

https://www.freshbooks.com/hub/taxes/nonprofit-tax-deductions-for-501c3-organizations

https://www.cleanegroup.org/what-nonprofits-need-to-know-about-the-investment-tax-credit/

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03/22/24 9:47 AM

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