Nonprofit organizations are vital to the welfare of the American people. Though they tend to get overlooked in mainstream culture, nonprofits represent a significant portion of the workforce. In fact, the U.S. government reports that there are nearly 2 million nonprofits currently operating in the country.
Even though these businesses are dedicated to supporting better lives and creating a better world, nonprofits are still subject to taxes. Here’s how to make sure your nonprofit is following IRS guidelines.
Do Nonprofits Need to File Taxes?
Even if the nonprofit is tax-exempt, most organizations are still required to file annual tax returns. This means that you must file a return even if you do not have to pay federal taxes. It seems a little backward, but the rules remain intact by the IRS—so we highly recommend following them to remain in good standing.
Form 990 for Nonprofit Organizations
If you are a nonprofit, you will want to submit Form 990 each year to the IRS. Form 990 is a type of document that the U.S. government requires federally tax-exempt organizations to submit. The purpose of Form 990 is for the IRS to evaluate the operations of the nonprofit and make sure they comply. It is also a way for the general public to assess its operations and learn more about the mission of the nonprofit, the programs offered and its yearly finances, since it is a public institution.
There are different types of Form 990 depending on the year you are filing and gross receipts of the nonprofit. The different forms include a standard Form 990, 990-EZ and 990-N.
Which Form 990 to File
According to the IRS, you can quickly determine what type of form you need to file based on the following information:
- Large nonprofits (with more than $50,000 in gross receipts) must file Form 990 or 990-EZ.
- Smaller nonprofits with gross receipts of less than $50,000 need to file Form 990-N or an e-Postcard.
- Private foundations are required to submit Form 990-PF.
Nonprofits Exempt From Form 990
Though we mentioned that most nonprofits are required to file a tax return each year with the U.S. government, there are a few exceptions. The primary ones are churches and state institutions:
- Faith-based organizations such as churches, religious schools, missions and missionary organizations.
- Subsidiaries of other nonprofits like those covered under a group return filed by a parent organization.
- Most government corporations that operate as a nonprofit.
- State institutions that deliver essential services to the community.
- All 501(c)(3) private foundations are required to file Form 990 each year. If you are unsure if your nonprofit needs to file taxes, you can contact the IRS. However, we recommend consulting with a tax professional instead, as the response time is much quicker and can get you solutions immediately.
Special Rules for Nonprofit Organizations
There are a few important rules related to nonprofits that do not apply to a typical taxpayer. First, the deadline for Form 990 is different from most taxpayers’ deadlines. You need to make sure you file it by the 15th day of the fifth month after the end of the taxable year for the organization. If the organization follows a traditional January 1 to December 31 calendar, your Form 990 is due on May 15.
Second, there are consequences for failing to submit Form 990. The IRS will penalize organizations that fail to file Form 990 for more than three years in a row. You will get your tax-exempt status revoked, which is an absolute necessity for most nonprofits to remain functional.
Please make sure you are not one of the more than 500,000 nonprofits across the United States that have reportedly lost their tax-exempt status since 2011. There is no appeals process for getting your tax-exempt status back, so do what you can to remain in compliance.
Lastly, you need to make your Form 990 available to the public. Any person who walks in during regular business hours may request it without further explanation. It is a good idea to make sure you have copies available and to post it on your website.
Tax Help for Your Nonprofit
Levy & Associates is a proud supporter of many nonprofit organizations. We have made it our goal to give back to the organizations that do so much for other people.
If you have tax questions related to your nonprofit, don’t hesitate to reach out. We are available for free initial consultations. Learn more about what we can do for you by visiting www.levytaxhelp.com or calling 800-TAX-LEVY.