Tax tips for nonprofits

As a nonprofit, you are likely evaluating how to raise funds for the coming year’s operational budget. While you’re closing the calendar year, make sure you are also keeping tax processes in mind. Here are some tips to save you time and frustration during tax season.

n 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. Due dates for the IRS 990 Form vary based on the end of your fiscal year. The 990 is due 5 1/2 months after the close of your fiscal year. If your fiscal year follows the calendar year, they are due May 15.

n 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.

n Say thank you (and document it). Nothing makes donors happier than receiving a prompt thank you from a charity they just supported.

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Sometimes, you’ll need to do more than offer thanks. Donors who make contributions of 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 the donor gets his/her deduction. You must include the name of your organization and nonprofit status 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. Or, provide a statement that goods or services (if any) that the nonprofit provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

n Come tax time, fill out the proper forms. According to the IRS, organizations that have a religious basis, are a federal or state nonprofit, or are a subsidiary 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. If your organization’s gross receipts for the year total less than $50,000, you must fill out Form 990-N. If your nonprofit 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 more than $500,000 annually, you’ll be obligated to complete Form 990. Private foundations must submit Form 990PF.

n Consult tax professionals. Consulting professional tax help is always advised to make sure you get the most out of your tax-exempt status, cover your bases and protect your nonprofit status. There are many tax professionals that offer pro bono help for nonprofits 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 scrowley@blumshapiro.com.

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