We have been getting lots of questions lately about nonprofit taxes, and whether or not they are required. I am going to walk you through the IRS requirements and provide you with some suggestions to help you prepare. First, let’s get some myths out of the way.
MYTH – Nonprofits do not have to pay taxes.
Reality – Nonprofits are required to pay payroll taxes collected on behalf of their employees, and the employer’s share of FICA (Social Security and Medicaid).
MYTH – There is a limit on the amount of money that nonprofits can have in one year.
Reality – There is no set limit on the amount of money that nonprofits can generate in one year. Revenues each year will really depend on the mission of the organization, its fundraising efforts, how long it has been in operation and a myriad of other factors. The important thing to remember is that the majority of funds need to be generated through “the business” of the organization.
MYTH – Nonprofits have to file tax forms just the same as all businesses.
Reality – Nonprofits have to file a specialized tax form called a 990. Remember that all nonprofits and ministries are recipients of the public’s trust simply because they do not pay taxes on the “profit” that they generate. So, the purpose of the 990 is to disclose to the public information about the revenue generated and in broad categories, what the funds were used for.
All nonprofits are required to file a 990 at some level.[bctt tweet=”All nonprofits are required to file a 990 at some level, failure to do so can lead to revocation of nonprofit status. #ministry #nonprofit ” username=”Grantconsultant”]
990 – Organizations whose revenues were $200,000 or more, or whose assets are more than $500,000.
990 EZ – Organizations whose revenues are less than $200, 000 and whose assets are less than $500,000
990 N – (E Postcard) Organizations whose revenues are generally less than $50,000 can file the E Postcard.
Because Americans are accustomed to having a filing deadline of April 15th each year, many people mistakenly believe that nonprofits must also file by April 15th. However, the IRS code says that nonprofits, specifically 501(c)(3) organizations, have until the 15th day of the fifth month following the end of their fiscal year. For organizations whose fiscal year ends December 31st, this means that the 990 must be filed by May 15; for organizations whose fiscal year ends June 30th, the 990 is due by November 15th.
Organizations of all sizes need to make sure that they comply with the federal filing requirements; failure to file for three years will result in an automatic revocation of nonprofit status by the IRS.
Other questions related to the 990, contact us today.
When some years ago I became the New Jersey director for Child Evangelism Fellowship, I discovered that one of our county chapters had been collecting but not remitting sales taxes for ministry-related materials. The local director dutifully collected the sales tax, but the chapter treasurer dumped the money into the general fund, claiming that, as a Christian organization, we were not expected to pay taxes. I went to the state sales tax office and presented the situation. Since I brought it to their attention, they said they would forget the past and work forward.