Entries with Topic: Nonprofit Finance

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/

   

According to the 2021 Benchmarks Report, the average nonprofit donor contributed an average of $167 in 2020—this per-donor metric was slightly lower than 2019. The increase that did occur was largely driven by more people giving rather than people giving more. While the global pandemic forced nonprofits to take their in-person events such as, conferences and fundraisers online overnight and propelled most into digital transformation at a pace we thought would take years, not all was lost—there were many positive outcomes.

A year later, it’s safe to say that virtual events and online giving are here to stay. Nonprofit professionals have embraced online fundraising since 1999 when the first “Donate Now” button was released by a project of the Tides Foundation—shaping best practices with 20+ year of innovation and experimentation. It’s more important than ever to understand your donors; what they care about, why they give, their communication preferences, and which social media channels they prefer. Equally important is that you use sustainable fundraising practices that drive predictable fundraising growth.

Below are some key strategies and best practice tips to help your nonprofit build its digital fundraising with low effort and high return.

  1. Don’t be afraid to invest. This might sound counterintuitive to your long-term fundraising strategy but spending a little more on the tools available to you will result in big payoffs later. Consider updating your website to ensure mobile optimization is SEO friendly or invest in integrating your CRM with your donation page—one that has custom branding, donation tiers, and recurring gift options to help increase your ROI.
  2. Utilize Search Engine Optimization (SEO). Organic searches are often one of the largest traffic sources to your site. Add quality SEO content to your website with relevant topics to the sector and incorporate these SEO strategies into your blogs, annual reports and videos.
  3. Don’t miss out on the opportunity social media provides. Encouraging people to share your content increases your ranking with Google’s own SEO algorithms and can yield huge returns. Moving your organization to a top search placement means more organic traffic—and donations. Better yet, it costs you nothing and only requires your time and commitment to keeping your website updated.
  4. Nurture, Nurture, Nurture. Once someone has engaged with your content, retargeting is a form of engaging with potential donors and bridging the gap between capturing their attention and getting them to click that “donate” button time and time again.
  5. Communication is vital to the success of your fundraising strategy. Utilize automated email campaigns that keep your audience engaged and coming back for more. You can create different campaigns for when someone signs up for your newsletter or makes their first donation—the possibilities are endless.
  6. Make giving a great experience for your donors. You want the process to be easy and convenient. Donation pages should be simple, optimized for mobile giving, and ask for the minimal amount of information necessary. No greater experience exists than a monthly giving option that provides the ease of filling out a form once and forgetting about it.   
  7. Create a tribute giving program. Organizations and individuals alike often look for ways to make donations in honor or on behalf of someone else—a popular way of giving during the holidays. According to the Global Trends in Giving Report, 33% of donors worldwide give tribute gifts.
  8. Don’t forget the power of email fundraising. Despite the popular myth that email is dying, the truth is that email use is growing. When the pandemic hit and businesses started working from home, mail came to a quick halt as no one was in the office to receive it and email became the way to communicate. Donors need reminding—reminders to give and WHY! Even more impactful than the reminder to give is sharing the impact of their donation which is often what inspires them to give again.
  9. Prioritize crowdfunding and peer-to-peer fundraising. Crowdfunding promotes a specific project while peer-to-peer fundraising is when individuals help raise money through their own fundraising pages and invite their friends and family to donate funds to support a specific cause. This type of fundraising is most popular with endurance events (marathons, etc.) and political or emotional campaigns (Black Lives Matter, etc.).
  10. Create an engaging thank you page. The best time to capture the attention of donors is while they’re waiting for a confirmation that their payment has been received. Create a “Thank You for Your Donation” landing page where you share how their donation helps your mission—perhaps with an impact video, invite them to follow you on social media, and offer ways for them to get more involved with your organization.  

The most important thing you can learn about online fundraising is that it should be sustainable and predictable. Outside of COVID-19, online fundraising has been driven by the release of new technology and social networking websites over the years, so ask yourself if you have the right tools in place to create a fundraising strategy that is both successful and sustainable.

Understanding the concept of the “business model” for your nonprofit has become a more integral component to maintaining organization sustainability within the nonprofit sector. Nonprofit leaders, grant makers and stakeholders want more insight behind the business and financial foundation of how a nonprofit organization is able to deliver according to their mission drive initiatives.

When discussing the nonprofit business model, often times it will include topics such as, cost to deliver services, mix of sources of funding, and key drives of financial results. Discussions around the financial stability and sustainability, more times than not, focus on the overall health of the balance sheet and operating results of a nonprofit. While each of these are essential components to have a better understanding of an organization’s finances and business model, these types of conversations can lose sight of a critical part of any business—the day-to-day operations. For example, the way a nonprofit organization does business can have a major impact on cash flow.

Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. At the most fundamental level, a nonprofit’s ability to create value for shareholders in determined by its ability to generate positive cash flows, or more specifically, maximize long-term free cash flow. Managing cash flow is primarily consisted of questions: when will we pay our staff; when is this bill due and when will this grant payment come in? While there are variety of nonprofit business models, each one has a particular bearing on these types of questions.

A nonprofit business model has two main components: what kinds of programs and services nonprofits deliver, and how they are funded. Each of these components have implications on organizational cash flow that should be understood in order to have effective financial planning.

Below are a few helpful strategies to use when addressing cash flow issues:

1) Understand where funding is coming from: Each type of income stream can have certain implications and challenges for cash flow, so if a business model is built primarily around one type of funding, you will need to understand and plan for those implications and challenges.

2) How to balance cash going in and out: In order to meet operating cash needs in the absence of adequate cash reserves, a nonprofit can turn to a line of credit to meet the temporary imbalance between available cash and expenses due. Credit lines, when used responsibility, can be a useful and vital tool for cash flow management.

3) How to manage cash across your organization: While it may be impossible to ensure that cash is coming into the organization exactly on time and on target to keep things on autopilot, it is possible to plan for those times when it isn’t, and make decisions to be sure that bills and staff are paid on time.

Being informed, strategic, and collaborative in cash flow management can help to ensure that a nonprofit’s long-term strategy isn’t hindered by avoidable and short-term obstacles.  

For more information on this topic, please reference this article: https://www.propelnonprofits.org/resources/managing-cash-flow/

Last year, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2018-08, which clarifies the accounting guidelines for contributions received and contributions made—focusing on the grants and contracts awarded by the government and other entities to nonprofit organizations.

You can now listen to the webinar on-demand to learn how to determine if an asset received should be accounting as a contribution or as revenue from customers.

This on-demand webinar will explore how to:

  • Distinguish between reciprocal (exchange) versus nonreciprocal (contribution) transactions.
  • Determine whether a contribution is conditional.
  • Dictate when these amendments should be applied.
  • Decipher the three scenarios that illustrate the possible differences that may affect how the standard will impact your organization.

This webinar is part of UST’s efforts to educate the nonprofit sector. For more learning opportunities, tips and legal updates just for nonprofits, sign up for our monthly e-News today!

Giving in the U.S. in 2020 will be different in many ways than previously—mainly because of campaigns, economic conditions, and tax law implications. Don’t miss this deep dive into the trends and forecasts of giving in the United States presented by Melissa S. Brown, Principal of Melissa S. Brown & Associates.

This on-demand webinar shares insights into how tracking these trends can help identify future opportunities as well as insights into:

  • 2018 “Giving Pie”
  • Multi-Year trends to help identify what donor types give and where
  • Methods to identify donors using DAFs or Foundations for Giving
  • Tools to inspire more gifts from donor-advised funds, required minimum distributions, and other tax-advantaged giving

For access to more learning opportunities, tips and legal updates just for nonprofits, sign up for our monthly eNews today!

What is an executive director? An executive director is “responsible for overseeing the administration, the program and the strategic plan of a nonprofit organization. Other key duties may include fundraising, marketing, community outreach, and this position reports directly to the board of directors.” As we all know, an executive director is required to wear many hats and needs to wear them all equally. Leadership styles have a huge impact on how well an executive director can carry out their duties—committed executive directors can set themselves apart when they’re able to evaluate their own leadership styles and seek input from others.

In this role, you’re tasked with the responsibility of both leadership and management and each duty requires a distinct skill level in order to be fulfilled properly. Leaders offer visionary qualities that can provide an overall scope to the organization’s specific problems and future planning. They tend to be a charismatic communicator and have the ability to motivate the team in anticipation of achieving future goals for the organization.  Managers are very hands on—they make sure things get done. Not only do they manage people but they also manage property and assets helping to fulfill the goals that management and the board of directors have set before them. They are the busy bees of the organization, who control, organize and monitor day-to-day activities of the operation. Think of an executive director of a nonprofit organization as being the “jack of all trades”.  

Along with managing and overseeing everyday tasks, an executive director is responsible for monitoring the finances for an organization—they oversee the development and on-going maintenance of the business model. This ensures the organization produces exceptional mission impact and sustains financial health. To make sure this is done successfully, the executive director has to be aware of the necessary business concepts.

Here are a few key business principles that could help guide financial leadership practice for your nonprofit:

1) Remain high-level and thoughtful with your board.

2) Make sure you’re managing your risks the right way.

3) Be sure to plan for your nonprofit’s reserves.

Executive directors learn that leading a nonprofit requires a constant balancing of current needs, external demands, and planning for the future. Financial leadership is crucial to the role and can not be fully delegated. Certain principles can help executive directors become accustom to the demands of the changing environment and maintain the balance needed for the organization.

Thousands of nonprofits have registered with their states in order to legally solicit donations… do you know what state requirements extend to your organization?

Presented by Affinity Fundraising Registration and hosted by Maia Lee, President of Relations, this on-demand webinar explains the essentials of fundraising registration and what you must do to ensure that you’re registered before filing your next Form 990. With over a decade in nonprofit marketing and development experience, Maia understands the challenges nonprofits face in fulfilling their missions with limited resources and is committed to educating nonprofits about charitable solicitation registration requirements.

 

You’ll learn crucial details needed to raise funds legally in any state with key information surrounding possible exemptions and how you may be subject to fines and penalties.  

Watch the webinar recording today!    

Want access to more learning opportunities, tips and legal updates just for nonprofits, sign up for our monthly eNews today!

 

Nonprofit professionals face a challenging job that is made even more complex by industry dynamics and a competitive talent marketplace—requiring even more attention around compensation factors that include benefit portfolio offerings. While benchmarking data exists in the corporate sector, detailed benefit data has been lacking in the nonprofit sector, until now. Work for Good has produced one of the most comprehensive national studies on nonprofit benefit offerings to date.

 

Presented by Karen Beaver, CEO of Work for Good, this on-demand webinar shares their findings from the 2019 Nonprofit Benefits Coverage Index Report, and reveals how you can take action now to prepare for what’s ahead.

 

This educational webinar recording outlines some of the top employee benefits trends shaping the sector this year and presents practical takeaways to inform strategy around:

  • Competitive benefit plan offerings
  • Current benefit trends
  • Strategies for 2020

For access to more learning opportunities, tips and legal updates just for nonprofits, sign up for our monthly eNews today!

Are you familiar with the Accounting Standards Update (ASU) 2016-14 issued by FASB? It’s a standard created to offer solutions to simplify and improve how a nonprofit organization is able to classify its net assets, financial statements, liquidity, financial performance, and cash flows. Now, that organizations have begun to apply this new standard, they are encountering implementation issues that were not anticipated. 

When organizations are gathering and preparing their financial information, they’re being faced with making difficult decisions on how to best present this information. For example, an analysis of expenses by function and natural classifications can be presented in multiple ways however, what is the most efficient and most beneficial method to do so?

Tammy Ricciardello states “Our advice on the presentation? Keep it simple. Yes, the analysis of expenses by function and nature should show the natural expenses of the entity by program and supporting activities, but this doesn’t mean that every type of expense should be presented on its own line. A straightforward approach will prevent the presentation from becoming overly complex and unwieldy.”

It’s important to remain focused on the information that is most useful and make sure that the one reading your financial statements can clearly understand the costs of each activity and where that activity is being allocated to. Remember, keep it simple.

To learn more about the best practices for implementing ASU 2016-14 functional expenses be sure to read the full article here.

Article provided by Tammy Ricciardella, CPA, Technical Director at BDO.

Did you know that certain nonprofits can legally opt out of paying state unemployment taxes? Do you understand who is benefiting from this tax exemption law? In this article, Jon Pratt, Executive Director at Minnesota Council of Nonprofits, discusses the benefits of nonprofit tax exemption and recent tax activity statistics.

It is important to understand that a tax-exempt status only exempts a nonprofit from paying tax on income that is generated from activities that are specifically related to the purpose for which the group was created. Nonprofits are not alone in benefiting from this exemption—by allowing more dollars to funnel back into the very missions that started nonprofit organizations—communities worldwide are reaping the benefits of endless services being offered by these 501(c)(3) organizations.

Jon Pratt explains, “Even though nonprofits are sometimes considered to be an essentially “tax-free” sector of the economy, they clearly have deep involvement on both sides of the ledger: as a tax expenditure, in the sense of forgone revenue, and as taxpayers and tax collectors, making substantial contributions to government revenues through tax collection from nonprofit employees and activities.”

To learn more about the national value of charitable nonprofit benefits and obligations, read the full article here.

Article provided by Jon Pratt, Executive Director at Minnesota Council of Nonprofits, Co-Director of GrantAdvisor and UST board member

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Privacy Policy

Privacy Policy and Terms of Use

UST maintains a secure site. This means that information we obtain from you in the process of enrolling is protected and cannot be viewed by others. Information about your agency is provided to our various service providers once you enroll in UST for the purpose of providing you with the best possible service. Your information will never be sold or rented to other entities that are not affiliated with UST. Agencies that are actively enrolled in UST are listed for review by other agencies, UST’s sponsors and potential participants, but no information specific to your agency can be reviewed by anyone not affiliated with UST and not otherwise engaged in providing services to you except as required by law or valid legal process.

Your use of this site and the provision of basic information constitute your consent for UST to use the information supplied.

UST may collect generic information about overall website traffic, and use other analytical information and tools to help us improve our website and provide the best possible information and service. As you browse UST’s website, cookies may also be placed on your computer so that we can better understand what information our visitors are most interested in, and to help direct you to other relevant information. These cookies do not collect personal information such as your name, email, postal address or phone number. To opt out of some of these cookies, click here. If you are a Twitter user, and prefer not to have Twitter ad content tailored to you, learn more here.

Further, our website may contain links to other sites. Anytime you connect to another website, their respective privacy policy will apply and UST is not responsible for the privacy practices of others.

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