As a non-profit, you are likely in the middle of your annual appeal and evaluating how to raise funds for the coming year’s operational budget. While you’re closing the calendar year and finalizing the last of your annual contributions, make sure you are also keeping tax processes top of mind. In this article, I offer some tips and best practices to save you time and frustration during tax season.
1. Be prepared – don’t let tax season sneak up on you
Have you collected W-9s for service providers and/or vendors? You’ll be getting those 1099 forms out in January so now is the perfect time to make sure you have what you need. Be aware of deadlines and avoid getting stuck with interest and penalties. Due dates for the IRS 990 Form vary based on the end of your fiscal year. The 990 is due 4 1/2 months after the close of your fiscal year. If your fiscal year follows the calendar year, they are due May 15.
2. Spend your grants
One of the quickest ways to lose out on getting the same grant the following year is to not use all the money you initially received. Make it a practice to have multiple people regularly review your grants and ensure your programs are running as promised.
3. Say thank you (and document it)
All donations – regardless of size – deserve a quick and heart-felt recognition of thanks. Nothing makes donors happier, and more likely to repeat a donation, than receiving a prompt thank you from a charity they just supported.
Sometimes, you’ll need to do more than offer thanks. Donors who make contributions more than $250 need a donor acknowledgement letter to claim the deduction on their individual tax returns. A donor acknowledgment letter can be a letter, an email, or a postcard – the IRS doesn’t have a required format.
However, there are specific details you need to include in the acknowledgement to ensure that the donor gets his/her deduction. You must include the name of your organization and non-profit status (e.g. 501(c)(3) and the details of the contribution (date, method of payment, or description of contribution).
Include a statement that no goods or services were provided by the organization in exchange for the contribution, if that was the case. If any goods or services were provided by the organization in exchange for the contribution, include a description and good faith estimate of the value of those goods or services (e.g. a fundraising dinner event where some of the funds received from the donor pays for the actual dinner, while the rest is a donation). Certain insubstantial goods or services like a sticker or coffee mug may be disregarded. Or, provide a statement that goods or services (if any) that the non-profit provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.
4. Come tax time, fill out the proper forms
Are you tax-exempt? According to the IRS, certain organizations and their affiliates that are: religiously based, a federal or state non-profit, or a disregarded entity of a larger charity, do not need to file an annual form.
If you don’t fall into any of the exemption categories, you’ll need to complete the 990 Form. However, there are several different versions of this form so make sure you are choosing the appropriate one. For example, if your organization’s gross receipts for the year total $50,000 or less, you must fill out Form 990-N. If your non-profit received more than $50,000 but less than $200,000 during the year and has less than $500,000 in assets, you can complete either Form 990-EZ or Form 990. On the other hand, if your group receives $200,000 or more annually, you’ll be obligated to complete Form 990. Private foundations must submit Form 990PF.
5. Consult tax professionals
Consulting professional tax help is always advised to make sure that you get the most out of your tax-exempt status, cover your bases, and protect your non-profit status. There are many tax professionals that offer pro bono help for non-profits and the benefits of properly filed taxes will only help the organization continue to fulfill its mission.
Shannon Crowley is an Accounting Manager at BlumShapiro. She can be reached at firstname.lastname@example.org. BlumShapiro, with more than 400 professionals and staff, offers a diversity of services, which include auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits, and litigation support and valuation. The firm serves a wide range of privately held companies, government and non-profit organizations, and provides non-audit services for publicly traded companies.