401c3 Nonprofit organizations help meet critical needs in the community. Whether serving children, the elderly, homeless individuals, veterans, or any of the other myriad populations that benefit from nonprofit services, these organizations provide essential resources and outreach in our communities, often operating in crucial ways that we don’t always see. Nonprofits also operate on unique funding structures that can differ significantly from other types of businesses, because they may rely entirely on grants, fundraising events, donations, and individual contributions to exist.
A lot of work involves getting people to donate and to keep the contributions coming in year after year. Managers need to have the capacity to budget to plan and execute programs. As such, the public, donors, and the IRS want periodic reporting to know how dollars are being spent. Accurate reporting requires good recordkeeping and having in place controls for proper expensing. A strong accounting system means your tax preparer can submit your 990 forms each year for your 401c3 or 501c3 without worry.
Roles of leadership in the nonprofit sector
Though nonprofits operate on different financial structures than other types of businesses, their employees still need to get paid. The IRS requires you to report on executive compensation and bonuses paid when in excess of $100,000. Other key employees include officers, directors, and trustees. You also need to report on fees paid to independent contractors. Keeping track of these payments can be a challenge.
Hiring an independent accountant to compile, review, and audit financial records is highly recommended for nonprofits to ensure accuracy and to allow your organization to continue focusing on what it does best: helping others. Boards of directors are required to certify and sign the results of operations of each fiscal year in the signature block. It is also their oversight to review business relationships to ensure that no conflicts of interest arise. Any relationships where a conflict of interest might be perceived should also be disclosed. The particularities of tax filing is often best left to a practiced expert who can ensure that nothing gets missed along the way.
Organization designation on Form 990
Group returns can be filed by a parent entity that has subordinate organizations. All organizations filling Form 990 must complete parts 1 through 12. The IRS requires all lines to be completed with results rounded to the dollar. The 990 is largely an information return. If this is your organization’s first time filing a return, there’s a checkbox to indicate this. Religious organizations do receive filing exemptions. Make sure to also account for any additional income streams from fees paid on services rendered. Ensure that your organization has the proper NAICS business activity code. You are required to file 5 months after your fiscal year ends.
IRS guidelines for nonprofits
Form 990 instructions are 100 pages long—a daunting read for anyone! The IRS provides general guidelines for nonprofit fundraising as well. It stipulates that an organization can only report fundraising that supports the mission of your non-profit. You also must be careful how you document donated machines, donated services, and materials. They can’t be included with revenues, grants, or expensed items. There is a separate section for reporting donated goods and services.
With so many details to keep track of and attend to, seeking the guidance of a tax professional while navigating your filing process is highly recommended. If you already provide impact reporting to communicate to your donors and the public about your organization, you can pull information from there to give a program synopsis required by the IRS, but given the complexities of reporting, getting outside consultation is important. Nonprofits are essential community entities, providing a wide range of services and assistance. Running a nonprofit is already a full-time job and community effort, and there’s no reason to try to navigate the complicated tax code alone.
Professionals at SD Mayer specialize in helping nonprofit organizations to prepare for and file their taxes. They have decades of expertise with nonprofits like yours, and are dedicated to helping these essential community programs and organizations. Please contact us for more information and one of our tax professionals will reach out to you to assist with your 401c3, 501c3, or Form 990.