Tax season is officially upon us! Filling out the paperwork for an individual tax return is one thing, but filing taxes for an organization is something else entirely. If this is your organization’s first tax season, or if you just want some helpful tips, we’ve got you covered.
It’s true that tax-exempt organizations don’t pay any federal income tax. However, depending on your income model, you may still need to provide other tax documentation to the IRS. For example, if you sell a product or service that isn’t directly related to your operations, you’ll need to pay state and federal taxes on those products and/or services.
Nonprofits are also require to pay employment taxes, like Social Security and Medicare, just like for-profit organizations.
Even if you don’t offer any tangible products for consumers, the IRS still requires that you submit a largely informational Form 990. The Form 990 is required for nearly all federally tax-exempt organizations, and it’s used to evaluate your organization’s programs, finances, mission statement and more. Basically, the Form 990 is meant to ensure that your nonprofit is doing what it’s supposed to do. If you’ve been “following the rules,” for lack of a better phrase, you have nothing to worry about!
There are different types of Form 990, and the one you need to fill out depends on your organization’s gross receipts and filing year. Check with the IRS to see which form is required for your nonprofit.
Nonprofits are also required to make their Form 990 public information. Some organizations even decide to publish their 990 on their website to promote transparency between them and their stakeholders. This isn’t required, but it might be a good idea if you’re trying to garner trust with your constituents.
If you fail to file your Form 990 for three consecutive years, the IRS will deem your organization inactive and will pull its tax-exempt status. This happens more often than you’d think—more than 500,000 organizations have lost tax-exempt status since 2011. You may think it’s a harsh penalty, but you can always regain your nonprofit status by sending in your forms.
Filing taxes for your nonprofit might sound daunting, especially if it’s your first rodeo, but it’s pretty painless compared to for-profit companies. If you’re not generating any income from unrelated business, the Form 990 is all you need on your radar.